If you’re wondering, “What Digital Currency is China using?” You’ve come to the right place. Beijing has been quietly researching the possibility of a digital RMB for the past four years. The Facebook announcement, however, has given the topic-new urgency. Digital currencies are based on blockchain technologies, and China has been a world leader in enterprise adoption of this technology. What does China’s move mean for the future of the digital currency?
The People’s Bank of China is the organization that oversees China’s digital currency program. They started the process by testing the currency in several cities this past spring. The government has said that they’ll be able to link electronic wallets to bank accounts for payment purposes. The digital currency is expected to make transactions and money transfers more convenient for consumers, businesses, and governments alike. However, it’s still too early to tell when this initiative will be a success.
Although the digital yuan is not yet widely used, it is backed by the government, and is as secure as cash. This gives the government better control of the money supply and allows officials to see all transactions. China isn’t alone in its pursuit of digital currencies. Other countries are also looking into these new forms of money, and South Korea and Japan are not too far behind. Meanwhile, the EU is signaling that a digital euro could be in use within four or five years.
There is a potential problem, though. While most jurisdictions require a rigorous identification check for digital currency users, China is attempting to keep things under control and protect its citizens. A centralised system would be able to monitor the transactions. In addition to protecting citizens, it would also prevent a central authority from allowing fraudulent activities to take place. If the digital RMB is a success, it will lead to a more competitive environment for businesses that rely on digital payments for revenue.
Despite concerns, China is far ahead of the US in developing its digital currency. The country is already running various trial operations, including utilities, catering, transportation, retail, and government services. The government has also made it possible for businesses and consumers to accept it in a variety of situations. A symbiotic relationship with AliPay and Alibaba is also expected to boost e-CNY’s popularity. That’s not to mention the e-CNY’s ability to use blockchain technology for payments.
While the e-CNY is a new currency, it is already used by millions of Chinese people. Although it’s not yet fully functional, it has recently debuted in app stores and briefly topped the charts in Apple’s China App Store. But the service is currently limited to just ten cities, and is significantly lower than WeChat Pay. It’s unclear if this new currency will gain the same prominence in the future.
The Chinese government has been pushing DCEP and digital currencies in their country for several years. Despite the fact that China has embraced the digital economy, the government is still clamping down on the tech companies. The new laws aim to restrict private companies’ ability to control cash flow and collect personal data. While the Chinese government continues to develop digital currency, the future of Alipay and other major tech firms may be forestalled.
The panel includes Dr. Elizabeth Economy, a senior fellow at the Hoover Institution and the director of Asia studies at the Council on Foreign Relations. She also works as a senior foreign adviser in the US Department of Commerce. Besides these experts, the panel includes Matthew D. Johnson, research director for China at Eurasia Group. These experts share their perspectives on how the digital currency is making its way across the world. So what should we expect?
The PBOC may use e-CNY as a means of circumventing U.S. sanctions on certain countries, including Russia. These sanctions have the potential to limit the access of sanctioned entities to international financial services. The United States has already sanctioned seven Russian banks and cut them off from the SWIFT messaging system. These sanctions may prove to be unsettling for other nations, who may wish to use alternative systems to their dollar-dominated financial system.