From introducing paper money for the first time, China has now become the first major economy to officially launch a digital currency. It has started to issue a blockchain version of the renminbi (also known by its unit, Yuan) to the citizens. A lottery system chose 750,000 lucky individuals for distribution and they can already spend their digital yuan as payment on online stores through a specific app.
Merchants have quickly adopted the Chinese Government’s new plans because app-based payment techniques were already common in China. Voices of concern are coming from the west side as experts highlight the potential impact on the US dollar.
The US Federal Reserve (FED) has also been exploring the possibilities of launching the Central Bank Digital Currency (CBDC) along with few other countries. According to reports, the European Central Bank also shared plans of introducing digital euro by 2026. However, it is facing opposition from Germany, where mainstream banks are worrying about the risk it poses to the banking system.
Digital Yuan Threatens the Dominance of US Dollar
American critics of China have described the digital yuan as a re-imagination of money that can decrease the power the US holds over the world economy. They claim that anything that threatens the US dollar, is a national security issue. The US dominates the economic universe with the dollar, covering almost 90% of foreign exchange (FOREX) transactions, reportedly. It has leveraged this power to sanction different countries, companies, and individuals that do not work according to its national interest. With these sanctions, the country becomes almost handicap to access the global financial system.
As the critics love to pit America and China against each other in the economic ring, it is not clear whether Chinese digital currency would be a significant threat to the dollar at the moment. As most financial or trade transactions (in dollars) are already digital, the yuan is less likely to make a huge impact on the US dollar’s international power. That power is likely to get much stronger after the launch of CBDC. According to experts, Chinese digital currency can help pave way for other digital currencies to create financial diversity in the global market.
On the other hand, China’s Cross-Border Interbank Payment System (CBIP), which was introduced in 2015 as opposed to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), would help digital yuan to gain some frequency. It would be highly beneficial for the countries facing sanctions by the US like Russia and Iran. They can pay for elite exports like oil in digital renminbi instead of US dollar.
Which Other Countries are Issuing Digital Currency?
According to reports, the Bahamas was the first nation to launch the digital sand dollar which is already being accepted in physical stores in Nassau. China is the second but the very first major economy to do so. Other major countries with definite plans to launch government-backed digital currency sooner or later include Russia, South Africa, Brazil, Sweden, Japan, Thailand, India, and Pakistan.
Developing countries have been more attracted to blockchain currencies, due to their nature of negating the role of banks.
Concerns About Payment Data Being Revealed to Chinese Government
According to the reports, like many other companies, Starbucks and McDonald’s have already started accepting the digital yuan. However, the reports have also raised concern because at the end of the day its China behind the digitalization of Yuan.
China’s mass surveillance and universal digital payment systems have already allowed the government to access and hoard any data it wants. This has been distasteful for many people who prefer to choose a decentralized cryptocurrency system over a state-back digital currency.