Digital Yuan As An Alternative To Cash
The People’s Bank of China (PBoC) proposes to develop a digital currency to potentially shift the financial power away from any currency. China is eyeing to create its own version of cryptocurrency through Digital Yuan.
The creation of the Digital Yuan is continuously developing for 5 years. China’s government expedites the process of launching its national digital currency to be one of the country’s responses against the COVID-19 pandemic to maintain economic stability. They are currently finalizing the development of the core functionalities of the digital currency.
The idea of the Digital Yuan is a financial innovation that China unleashed as another milestone that aims to make economic transactions modernized.
The Digital Yuan is comparable to cash because it is both a liability of the state. The movement of physical bills to digital bills is just a sign that economic ways are being more strategic in terms of utilizing technological means.
It is a centralized currency, it means that there is an entity that will govern its functioning so if there is an issue using it, it will be resolved in a timely manner.
It is the central bank’s responsibility to release physical money into the financial system, however, with the pandemic that is experienced, they also need to ensure that the virus will not be transmitted through these bills that is why they are taking precautionary measures such as disinfecting banknotes.
It is too much hassle to disinfect banknotes that is why now is the right time to utilize digital means on how to spend assets through the help of cryptocurrency platforms.
Impact Of Digital Yuan To China’s Economy
The use of a Digital Yuan aims to avoid the issues with the volatility of currencies or the changes when it comes to currency returns that greatly impact the economy. Utilizing the use of a Digital Yuan is a way for the Government of China to make different transactions to the central bank faster and convenient.
The Digital Yuan is China’s unique form of digital currency that addresses cost problems and efficiency.
Experts propose that having a digital currency allows the government to have full control in managing and securing the country’s monetary assets. If the Digital Yuan has been successful to be an alternative to cash, the government will provide the lowest interest in the lending services and commercial loans. This will be beneficial for those who were directly affected by the pandemic.
The digital wallets for Digital Yuan are government-provided that is why there is no fee collected in using the platform. When the use of the Digital Yuan is fully operational, it can make cross-border transactions easier and since China is already used to digital payments, the state will not have a hard time marketing it to the people.
The idea of a Digital Yuan is a positive step for China amidst the pandemic. Aside from their technological advancement, they also venture into financial technology for enhanced sovereign digital currencies.
The Digital Yuan targets different establishments such as food chains, oil industries, etc. in paying for goods and services. The app that will be using will allow its users to send payment, request payment, and buy for goods and services. It is not created to compete with other cryptocurrencies because it cannot be used for trading.
The Future of Digital Yuan
Nowadays, there are a lot of platforms that allow you to utilize money digitally such as transferring funds through mobile banking and other banking systems and the use of an app such as Alipay and WeChat Pay that allows you to pay for goods and services electronically.
With the advancement of modern technology, the use of Digital Yuan is a great alternative to replacing cash in circulation in the future. Since China is the first country to officially allow the use of digital currency as an alternative to cash on the state, the central bank will have an assessment if digital currencies is a recommendable use for other countries.
With Digital Yuan in circulation, the government can give real-time data and updates on how the economy is growing. The Digital Yuan also assists in government transactions in giving social security and welfare payments faster and more accurately.
China is not only concentrating on making the Digital Yuan a success but it also takes measures on how they can improve their system regarding the use of cryptocurrency platforms. When the release of the Digital Yuan is a success, it is expected that crypto users in their country will also increase.
Possible Downsides of Using Digital Yuan
Digital Yuan is a form of centralized currency where there is a third-party entity that controls it. All transactions made through the use of the Digital Yuan are controlled and regulated. Being a centralized currency ensures stability because of transparency where data is transmitted in real-time, however since it is a digital asset, it is prone to hacking that leads to loss of funds.
Since your funds are stored digitally, you may only access it online.Expert proposes that for the Digital Yuan to be an ideal alternative for cash, it must be suitable use for everyone. There is an impression that it can only cater to more technologically inclined individuals that is why it is still bound for further improvements.
Western countries such as the USA and Europe might perceive that the Digital Yuan is a threat to the economical status especially that it can affect the financial power of dollars.
Frequently Asked Questions About Digital Yuan
1. How does the Digital Yuan work?
The way how to utilize a Digital Yuan is just like how the cryptocurrency platform works. You will be downloading and installing an app for the digital wallet. The funds are loaded into your account through a commercial bank. Receiving and transferring funds is possible as long as your recipient also uses a Digital Yuan digital wallet.
2. How will the government introduce it in the market?
People nowadays are already used to digitally inclined platforms to pay for goods and services. The idea of the Digital Yuan is no longer a new concept it’s just that it is the government that centralizes and acknowledges it as a form of cash that you can spend or save digitally.
If the use of the Digital Yuan is a success, the government of China is confident to officially implement it as an ideal alternative to cash with the help of technology.
3. Is there an economic impact?
The use of a Digital Yuan is not expected to have a great impact on China’s economic status since the Digital Yuan will still be counted as cash. It may have an impact on bank transactions because bank deposits and withdrawal will be lessened. The use of a Digital Yuan makes it easier to predict the economic status since the data can be extracted in real-time.
The Digital Yuan will be the first digital version of a currency. There are a lot of controversies that are being tackled whether or not it can be an ideal alternative to cash.
It is not a mandatory government service but it is good to have an option especially in times of crisis where it could be a hassle to go out and withdraw money from an actual ATM machine to pay for different goods and services. The idea of DIgital Yuan is to make different transactions easier, faster, and convenient.