Digital Yuan: 5 Things About China’s Digital Currency

There’s a new player on the world stage that banks, economists, and investors should pay attention to – China. China is known globally as a solo player and developing things on its own; In its latest venture to catch up with digital currencies like Bitcoin, China has launched its own digital currency, e-CNY or Digital Yuan.

As a part of China’s plan to regulate capital flight and reduce reliance on foreign currency, China recently announced it would launch a digital version of its currency called the “Digital Yuan.”

The Digital Yuan (e-CNY) is often called “digital gold” because it is stored electronically and not printed like paper money that could be lost or destroyed. However, unlike other cryptocurrencies in the market, Digital Yuan is solely owned by the Chinese government. This centralized and government-regulated approach reduces the privacy and anonymity of its users. Here is a brief detailing of five crucial facts related to the Chinese Digital Yuan:

1. Monetary Policy Can Be Effectively Transmitted

The Chinese government and the People’s Bank of China have collaborated on creating this digital currency to replace loads of cash in operation. Officials from PBOC have said that Digital Yuan is just the perfect solution to meet the requirements of a largely populated country like China. Furthermore, the new digital currency would be a means of the government’s effective monetary policy transmission. Additionally, this new digital currency aims to reduce world reserve currency dependency by China.

2. China Is Keen on Developing Digital Currency in Chains

China is one of the keenest nations in the world to develop a digital currency that can help fulfill its goal of becoming a cashless society. They have already created their own “plan” called “The 5th Generation Banking and Insurance System”. According to this plan, they want complete financial services online by 2020, especially loans and credit issued by banks. It would not be possible without a digital currency that can be quickly transacted online via mobile devices or computers for both businesses and consumers.

3. Increase Competition and Gradually Reduce Payment Risks

This new digital currency set to be launched not only aims to become a competitor in the market but also offers a chance for competition. It would increase competition, eventually bringing more transparency and reducing payment risks. For example, traders and businesses will have their transactions conducted digitally, which should result in faster settlements and speedier responses while at the same time also improving efficiency and reducing costs of doing business.

4. Trustworthy Currency in a Very Conflicted World

China is one of the most highly trusted countries out there, with a credit rating of AA- by Moody’s Investors Service, which also ranked them as “stable” by S&P Global Ratings. And even though they have a substantial budget, they have achieved economic growth of 6.9% in 2017. For this reason, they are working on developing a digital currency that is also trustworthy and accurate to reduce the risk that comes with international transactions. Digital Yuan is created as a digital asset and is supposed to work with a unique Digital Currency Electronic Payment system.

5. No New Money Will Come into Circulation

The main motive behind launching this centralized digital coin was to reduce cash-based transaction and promotes the use of digital currencies regularly. People in China can use Digital Yuan to make payments even at small street vendors. People will also use it to remit money earned in other home countries.
These transactions, including buying cars and property, paying for bills like electricity and phone, and making payments for taxes, will no longer face the problem of cash shortage. Over the next few years, Digital Yuan or now known as e-CNY or “Digital Yuan,” is set to become a mainstream financial tool for use by enterprises, retailers, and consumers all over China.