Chinese digital yuan is digital currency China. This is very interesting. Because before this country banned Bitcoin. Bitcoin is a cryptocurrency that works based on blockchain technology. But now they developing their own digital currency. Called the digital Yuan.
China is the first country to explore the launch of its own digital currency. Which will be tightly controlled by the People’s Bank of China.
This digital currency testing has actually been going on for several months at banks owned by the Chinese government.
Chinese digital yuan experiment was done by the Agriculture Bank of China in Shenzhen, Xiong’an, Chengdu, and Suzhou regions. The digital currency will also pay for the transportation of civil servants in Suzhou since April.
Popular brands such as McDonald’s, Starbucks, and Subway were also participating in experiments in the Xiong’an Smart City Program. In addition, experiments in the city also focus on catering and retail companies.
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- 1 Chinese digital yuan explained
- 2 How Chinese digital yuan works
- 3 Why has China issued a Digital Yuan currency?
- 4 Difference digital Yuan with another cryptocurrency
- 5 When Chinese Digital Yuan will launch?
- 6 What is the future of digital Yuan?
- 7 South Korean merchant open to accepting digital yuan
- 8 Final thought
Chinese digital yuan explained
Digital currency from China is Yuan that digitalized. The Central Bank of China chose to digitize the yuan rather than launching a new digital currency. From a technical point of view, the digital yuan will be issued by the central bank to a local commercial bank, before it can be distributed to the public.
This means that the bank will be the only publisher and main distributor of the digital yuan version. In addition, the Central Bank of China has the potential to be involved in designing the functionality and national cryptocurrency purses so that they can access all data.
But apparently, China’s digital money system is not based on blockchain technology to bring a digital payment system as comfortable as WeChat Pay. This was conveyed by Deputy Director of Payment of the Central Bank of China. August 2018 Mu Changchun said that the blockchain platform could not provide the results needed by retail users.
The image above has been viral on the internet. Reportedly to originate from a trial version of a mobile application. Developed by one of the largest state-owned banks in China namely the Agricultural Bank of China.
As reported the bank is trying internally in small groups to experiment with digital currencies. Meanwhile, the Digital Currency Research Institute, the unit of the Chinese Central Bank, People Bank of China (PBoC), which oversees the development of the project did not comment on the picture.
PBoC confirms that it is only part of testing, and has not officially been launched.
How Chinese digital yuan works
Chinese digital currency Yuan or some call Digital Currency Electronic Payment (DCEP) in practice is to be able to do daily banking activities. This includes payments, deposits, and withdrawals using a digital wallet.
Currently, it is still in the testing phase. But after it is launched later users must download an electronic wallet application that must obtain authorization from the People’s Bank of China (PBOC).
The wallet address is then linked to a bank card to be able to make payment transactions or receive digital yuan money. The transaction uses a smartphone between users or transfers with an ATM machine to another user’s wallet address.
The nominal money in the linked bank account is then converted to digital money on a one-to-one basis. In addition to the linking option with a bank account, there is also an option without a bank account to be able to make payment transfers.
Digital yuan work without an internet connection
The way DCEP or digital Yuan works is different from other payment instruments used in China such as Alibaba Alipay and WeChat Tencent Payments. The currency digital Yuan system or DCEP supports payment transactions even without an internet connection.
The Yuan digital wallet application has a function called “touch and touch” allowing two users to only touch their mobile devices to make transfers. This makes it easy for users who have unreachable internet signals.
And further, these transactions without leaving records of payments with third parties or the banking system.
Digital yuan is one of the most liquid forms of money supply, in addition to banknotes and coins circulating in the community, known as M0, but in digital form.
It’s just that the yuan digital currency is official as a sovereign currency issued by the government through the central bank of China.
Why has China issued a Digital Yuan currency?
Yuan’s digital development has actually started in 2013, but the realization is currently only in the testing phase. The maybe last year 2020 digital Yuan officially launched.
To be able to replace cash money, there are several conditions that must be met.
- Greater efficiency
- Lower transaction costs
- Sufficient economies of scale with commercial value
- Acceptance from the community
Minimize usage paper money in pandemic
Not without a reason why China issued the digital currency Yuan, one reason is the possibility of a pandemic coronavirus. The use of paper money in the pandemic period can be transmitted from an object to an object. This will reduce the use of paper money that moves from hand to hand.
Besides using digital yuan, the supervisory authority can examine the payment and the state financial system. Officials will have more access to track how citizens using money.
Determine credit structure policy
The point is with digital currencies all payment transactions will visible online. So that all cash flows in the community will traceable. By moving financial transactions online, cash flow information and credit data are stores in a database.
This can be useful for determining the credit structure of a society. The structure policy can influence the method of supervision, to assess its effect.
The database can be checked at any time. It is useful for storing digital records. So that it can also easy to check citizens who have committed money laundering, avoiding taxes, and other forms of violations.
The theoretical concept is that after the launch of the digital yuan, all transactions must be traceable by the regulatory authority – cash flow.
Another reason for launching the China Yuan digital currency is primarily to internationalize the yuan. And it hopes to improve the status of the reserve currency if the DCEP payment system is for use in electronic commerce by other countries.
Because the digital Yuan can reduce transaction costs for cross-border trade compared to paper money.
Difference digital Yuan with another cryptocurrency
Some people might think that digital yuan uses blockchain technology. Actually this opinion is wrong. China’s digital yuan uses a centralized system privately managed by PBOC.
This is the opposite of other cryptocurrency designed decentralized without government intervention. Cryptocurrencies such as bitcoin, operate on decentralized public computer networks based on blockchain.
It is a ledger book that is distributed, without any control by the central authority. So that in some countries Bitcoin and other cryptocurrencies are considered illegal because they are vulnerable to illegal activities, and again the value is not stable.
Meanwhile, DCEP does not use blockchain technology. PBOC plays an important role in this financial system to prevent the risk of political interference. So that the PBOC is given more power by DCEP to have more control over the total volume of money supply in accordance with economic conditions.
In its concept, DCEP operates through a two-level operating system.
- First is that PBOC issues DCEP and then distributes it to commercial banks and other commercial operations agents without using a blockchain.
- Second, then the commercial banks distribute digital yuan to the public.
Analysts think business activities should be generated in real-time to help the PBOC maintain the stability of the yuan’s value. And also regulating the cycle of economic activity that can effectively reduce the risk of credit bubbles in the financial system.
When Chinese Digital Yuan will launch?
There is no exact information when the digital yuan will be launched, currently, China is in the testing phase and will see further developments.
There is no official schedule at the time of the official launch of the DCEP system. But seeing the increasing Chinese Digital Yuan news makes people speculate that it will be offered to the public in 2020.
China is a communist country with the world’s largest population with a population of around 1.3 billion people. Of course, this is also a challenge in the idea of using digital yuan to replace cash. Because not all residents have smartphone equipment for every citizen.
So that in the near future if the digital yuan is really officially launched, however people who are accustomed to using paper money still need it to adapt to new rules. This might potentially lead to conflict if it does not support fair policies.
What is the future of digital Yuan?
A Peking University digital finance researcher named Xu had a view of successfully completing internal testing. Subsequently, the use was gradually expanded to pay staff wages in government, administrative agencies, and state-owned enterprises.
However, on the other hand, a professor of economics at the Stern School of Business, Newyork University Nouriel Roubini. He has the view that the main problem using digital currency is potentially disrupting the current system of the traditional banking business.
This can reduce the need to deal with commercial banks, thereby potentially losing bank deposits. As well as hampering the ability of commercial lenders to provide loans.
Furthermore, when China began to transition into society without cash. This will increase the need for an ATM. So that this will also be questioned for the readiness of this device.
This will be a big change in business. Youth who are more familiar with the use of mobile devices have become the foundation to take the lead in using digital yuan.
In the future, there must be an option to use digital yuan to be integrated so that it can make interest-bearing deposits and invest in wealth management products.
Does Digital Yuan beat the dollar?
The emergence of digital yuan by analysts is predicted to defeat the dominance of the dollar so far. Digital Yuan is different from other cashless payment methods that use intermediaries. Digital Yuan can make transactions from device to device without intermediaries.
Surely this is an interesting concept both for domestic and foreign trade. And because of this, some observers predict that western domination will soon end and eastern domination will change.
However, this is only public discourse, and Digital Yuan has not been officially launched yet. This also requires a 5G network which must be further developed.
For now, China is one step better than the US, which is precisely where there was a big wave of protests that became conflicts in the country.
Of course, this condition can worsen the dollar itself. But whether America will impose sanctions on China with this step, for now, there is no news about it.
South Korean merchant open to accepting digital yuan
Even though Digital Yuan has not been officially launched yet, it has actually been received by other countries, let’s say South Korea. Cointelegraph reported that South Korea was interested in using the digital Yuan as an increased number of tourists from China came to the country.
In the report, local merchants pay attention to the digital yuan to be accepted as a way of their transactions, even though there are also already popular with Alipay.
However, it seems that not all institutions will approve this idea because digital yuan is different from cryptocurrency in general.
Because in it there is the technology that can track user transactions, of course, this will be feared can be used by China for unexpected purposes.
The step China plans to launch digital yuan is a big step in the world of finance. The development of 5G network infrastructure will be further enhanced to be able to reach more widely throughout the world.
However, in each country having their own sovereignty, international cooperation must benefit both parties. This includes the use of digital yuan for cross-border transactions. Do not let the privacy of other countries be used for purposes that only benefit one party and harm the other party.
The world must uphold justice in all aspects of life.
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