Digital Yuan is near but Chinese Banks Are not Ready for It
As digital currencies continue to gain popularity and hype around the world, countries are taking various approaches to integrating the revolutionary technology into their society. While some countries are looking to regulate existing crypto use, China is the first country to implement its own central bank digital currency (CBDC).
Digital assets provide financial freedom to individuals around the world. Many countries see this as a major threat, as it is taking power away from their established monetary system. Recently, China has taken steps to slow crypto growth in the country and is pushing the digital yuan towards mass adoption.
China Making Room for Digital Yuan
Over a year ago, The People’s Bank of China announced the development of the digital yuan, becoming a pioneer in the space. With so much blockchain business springing up in Asia, China seems fit to be one of the first to implement the development of the digital asset.
China is now clamping down on activities surrounding cryptocurrencies in the country. The news of China banning cryptocurrency mining sent prices into a spiraling downfall. It should come as no surprise that the country is working to eradicate currencies that will compete against the CBDC.
Despite China’s recent development, the US Dollar still remains as the world’s reserve currency with USD making up 59% of global banks’ reserves. With the digital Yuan, China has hopes that the digital yuan will take over as the world’s dominant currency. A quote from Alicia García-Herrero, chief economist for Asia-Pacific at Natixis says:
“By fostering the cross-border acceptance of its digital currency, China is hoping to lay the groundwork to eventually bypass the use of the dollar,”
In addition to making the yuan more used around the world, the PBOC is hoping to have an easier time implementing monetary policy. The central bank believes that it will be able to have a great deal of control over the economy through the ability to monitor the entire CBDC network. Through real-time data, the policy makers believe they can control the markets as well as possible.
Bitcoin was originally developed in 2008 due to the failures of banks during the financial crisis. While other cryptocurrencies are decentralized, the digital yuan is controlled by the PBOC.
The government has already expressed that they intend to monitor transaction data for illegal activities and money laundering. Chinese Communist party expressed that CBDC will have “controlled anonymity,” but there are many questions around exactly what this means. The possibilities of overusing this control are terrifying, as they completely violate what cryptocurrencies were originally designed for.
Currently, the Chinese government is working with banks to distribute the CBDC to the people. While large banks are already opening digital wallets for customers, some banks still lack the technical capabilities to implement the digital currency.
Although we cannot know what’s going on behind the scenes in the Chinese banking sector, what we do know indicates that the digital yan will not see mass adoption soon. The build-out of complete infrastructure for the CBDC could take years, but China is making fast progress—and other countries are sure to watch closely.
China is sure to be the first of many countries to implement a CBDC. Do you think a CBDC takes away economic freedom? Would you support a CBDC in your country? Let us know in the comments.