Overview: China is all set to launch its own digital Yuan very soon this year. The former president of Bank of China Li Lihui believes that the digital Yuan could replace cash in the coming future as a mode of payment.
The former president of the People’s Bank of China, Li Lihui announced that the digital Yuan can soon replace cash if certain key conditions are satisfied. He recently appeared on a live streaming talk and revealed the launch of digital yuan formally known as DCEP ( App) .
In the live stream of the People’s news on May 5, he also said that the digital Yuan could also replace widely used payment gateways like Alipay and WeChat.
He said, “ Whether the digital yuan can become the dominant form of currency and mainstream payment means, depends on whether it has greater efficiency, lower transaction costs, enough economic sale with commercial value, and people’s acceptance,”
It has been on Buzz for a month.
Since the announcement in November 2019 of confirming the development and launch of China’s Digital Yuan, it has been hot topics and burning the traders’ excitement high.
Over the Pandemic economic effect, the Chinese Regulatory were keen to launch the Digital Yuan and the People’s Bank of China (PBC) collaborate with Private crypto firms and were on the development of stage.
Three categories of Digital Currency
Li Lihui defines digital currencies in three categories,
- Legal Digital Currency
- Blockchain-based cryptocurrency
- Trusted institutional digital currency
Li said the digital yuan too permits anonymous transactions similar to Bitcoin. However, the frequency of transactions and the amount involved would be monitored and controlled.
China Already Rolled Out Digital Currency Testing Phase
The Chinese central bank had earlier rolled out its plan on the launch of state-owned digital currency after Facebook’s Libra currency was proposed to launch.
Now, China has begun to test the functioning of the digital currency in four major cities including, Shenzhen, Suzhou, Chengdu, and Xiong’an.
The digital currency will be tested in various ways like paying April month salaries to some government and public servants, the transport system in Suzhou, and food and retail shops in Xiong’an. The digital currency is expected to give positive results amid the COVID – 19 pandemic situation.
The China Central Bank’s expectations on Digital Yuan
Replace Cash and other Popular Payment Gateway
It is estimated that the digital Yuan could replace 30%-50% of the cash in the country within two to three years. Same as cash, the central bank will exchange the digital currency with banks and payment operators, and later they would distribute digital yuan. In this way, the Central Bank of China has planned to retain control over the cash.
The digital yuan is claimed to be more private than third party payments like Alipay or WeChat. As it is a cash replacement, no interest would be offered as bank accounts.
A rescue during COVID – 19 pandemic state
During the COVID – 19 recovery period, the central bank has planned to provide subsidies and tax refunds using the digital currency. This would erase the delay issue occurring in this pandemic situation and prevent corruption.
Also read, Cryptocurrency Regulation in China
Challenge Dollar Dominance in the Market
China tends to promote its digital currency in the international markets to reduce Dollar dominance. It states,
“If the Digital yuan can be accepted by other countries, especially the weak fiat currency countries, the digital currency will reduce transaction costs and ultimately help promote the internationalization of the currency,”
China’s plans to introduce digital yuan to replace cash completely depend on the acceptance from the customers which in turn depends on the work efficiency of the digital currency. The pilot project of the digital currency could prove the digital currency more efficient, safe, and secure than cash or any other payment gateways.
On the other hand, the international impact of digital yuan is yet to be analyzed. China would push for the dominance of the digital yuan in the international market which is now working in Dollars.