China is one of the fastest-growing economies in the world, second after the United States of America. It is also an IT hub and is surprising the world with its innovative approach, inventions and discoveries in science and technology. Digital Yuan or E-Yuan is one of its successful ventures. It is the first of its kind cryptocurrency released by a major economy’s central bank and second to Bahamian Sand Dollar to do so.
In many ways, China is spearheading nations in developing their national digital currencies. The cryptocurrency E-CNY is going through trials, and it is available in the public domain for usage.
It runs on blockchain technology, so the safety feature is fully ingrained in it. The Chinese authorities are planning to use it officially during the onset of the Beijing Winter Olympics in 2022.
What is digital Yuan?
Digital yuan is identified by several names, including e-CNY, digital RMB, E-yuan, DCEP( digital currency electronic payment). Interestingly, it is not here to replace the Chinese renminbi. It is there to be circulated along with other payment methods and deposit accounts. In addition, like several cryptocurrencies, you do not need to carry them in your pocket. The Digital yuan has been developed by the People’s Bank of China.
China as a country is one of the leading countries that is accepting and adopting digitisation in every domain of expertise. Notably, in 2019 alone, the estimated transactions through mobile payments were around 350 trillion yuan. It makes for USD 54 trillion. The statistic indicates how it can be a driving force leaving behind the US dollar.
Thus, the monetary system is robust like anything. Moreover, the population factor and usage of more than 1.6 billion registered mobile phones as of February 2021 exhibit the potential the future digital currency can pit against existing fiat currencies of other nations.
Furthermore, China is already using digital currency in insurance and making payments for salaries to employees. So, it goes to show how serious the dragon is regarding its expansion of cryptocurrency.
Usage of digital yuan in medical insurance
In the Shenzhen area’s Nanshan district, medical insurances are being distributed to employees of Ping An. It is an activity to normalise the use of digital yuan through the incentive method. The preferential allowances would be paid to them when they use e-yuan for paying the premium.
It is noticeable that the policy offers coverage of 500,000 for accidental deaths and 300,000 for deaths caused by Coronavirus. The payment is made in digital yuan. Moreover, it also gives the understanding to local people who do not know much difference between using a fiat currency digital and digital yuan. Additionally, it gives a perspective of use cases to the People’s Bank of China how blockchain-based currency would work on its platform.
While China may be pushing its digital yuan to find global acceptance, its introduction to the insurance market would open up the doors of acceptance in the sector. Moreover, it can become a benchmark for others to follow.
A short while back, Deloitte had said that usage of blockchain technology could significantly reduce insurance frauds. Also, the usage of digital yuan would bring transparency in the public domain.
Athletes to use digital yuan during winter Olympics
Athletes, tourists and travellers would be allowed to use digital yuan during Winter Olympics time in 2022. So, it would create awareness plus acceptance among several athletic federations. So, it is cited as a wise move by China as sportspersons from different nations would travel back and take the digital currency with them and what better way to advertise or market it. The councils there would help athletes create digital e-wallets.
What are the advantages of digital yuan?
The launch of digital currency in the Chinese market has brought a boom into its economy. When the world is reeling under the pressure of the COVID-19 virus, China has learned to capitalise on the digital market through it. The director of the Digital Currency Research Institute of China, Mu Changchun, believes that the adoption and introduction of digital currency as a legal currency would provide integrity and sovereignty to Chinese currency.
Moreover, there will be controlled anonymity. The achievements would be significant, according to Changchun.
- It will help international transactions in countries that have been sanctioned by the US and developing to become bigger.
- The introduction will help curb transactions by terrorists. It will also prevent money laundering. Moreover, anonymous payments would be traced easily if done in an illegal capacity.
- The best part would be it going global and becoming the number one competitor of the US dollar. Additionally, there are chances it might get better with the US currency.
- It will assist distribute the currency at a swift pace in the market. Also, there would be no wastage of currency notes and stress of publishing them.
- There’s no printing cost that goes into minting currency notes. Unlike other cryptocurrencies, it is a centralised one. Thus, the trust would be higher.
- Its acceptance in the world would be wider than bitcoin because the Central Bank of China would control its release and circulation.
- There’s no chance of these getting older, torn or lost. So, that’s one of the biggest pluses.
- Fake currencies would cease to exist once it comes into circulation in its entirety.
- The use of banks becomes minimum to nil. So, it serves the purposes of saving resources and manpower.
- The flexibility of transactions is also there. So, during the crisis, e-yuan wouldn’t be affected. This currency can be stored on digital platforms. So, no worries of carrying and losing them to a thief.
- It can be spent on buying any good and service at will. Unlike bank transfers, transaction and execution speed are quick.
- The fee charged for transacting it crossborder is negligible.
- Billions of dollars can be saved, and trillions may be earned using it once the circulation goes wild worldwide. The US currency can be brought to its knees once billions of people start settling their transactions using e-yuan.
- It will reduce or diminish the need of the middlemen. Also, direct connection with customers will infuse confidence in users regarding the currency.
- Banks would have less dominance over the activities of transactions. So, it will save time.
- The old traditions of cheques get chickened out through this. Thus, the digital yuan is a lot more eco-friendly.
Adoption of digital yuan
For testing the digital yuan, several Chinese firms have come forward to support it by putting it through trials in their respective companies. For gaining a competitive advantage over other businesses, they have begun channelising it. These are the following ways they are implementing it:-
- Business to clients
- Clients to business
- Clients to clients
- Business to business
- Cross bank settlements
- Distribution of payrolls
It has helped them get to the nerve of customers. The tracking and transparency that comes with digital yuan help in recognising the lag and growing percentage of the market.
Types of businesses utilising services of the digital currency
- China’s biggest wholesale e-commerce company and platform, Meituan Dianping, use it for transactions.
- The video and streaming platform Bilibili uses it for the betterment.
- Didi Cuxing is one company that operates like Uber in China and provides commuting facilities to people.
So, these businesses have already witnessed the perks stemming from using digital yuan in a short span. Receiving funds happens instantly. There’s no time lag or stress that one might have to go under while processing it. The history of transactions can be checked by anyone. So, one does not need to remember the amount paid or received. The automation and blockchain technology enables the feature for conglomerates, as mentioned above.
How is digital pay better than WeChat Pay and Alipay?
Firstly, WeChat Pay and Alipay are platforms utilised as wallets while making online payments. Both payment platforms or wallets are like PayPal. Earlier, Alipay used its payment services for its own website. After realising the growth, it expanded, it became a payment method.
While WeChat Pay stems from WeChat, a chatting app.
However, the digital yuan is miles ahead of both. And that’s why it is suggestive of the fact, that people would adapt its services leaving others.
- There’s an option available for someone offering offline payment in digital yuan. However, the feature is missing in WeChat Pay and Alipay.
- The Digital yuan is backed by the government, and there’s full support of the central bank. But that’s not the case with both payment methods. So, the trust beckons and reckons in the case of e-yuan. Also, there’s no way a currency backed by currency can ever default.
- People can invest in it and draw profits as its value grows subsequently, same as the forex market. Also, with everyone talking about it, gains are ensured.
- Digital yuan does not require any bank account. All you need is an e-wallet, and transactions happen with clicks on your device. However, with Alipay and WeChat Pay, you would require a connection with bank accounts along with digital wallets. Also, without them, you won’t be allowed to withdraw your money.
- There’s a huge possibility of the digital yuan getting accepted in the market without a shred of doubt as China’s official currency. But Alipay and WeChat Pay may not be accepted considering various parameters.
Can the USD dollar come on its knees?
The primary inspiration behind launching the digital yuan is establishing a currency that can unseat the might of the US dollar. The US currency has been enjoying an unprecedented position in the hearts of several nations. Even the international trades are commemorated in USD. The exchange of currencies and rates of goods and services are decided through the US dollar. This is due to the universal acceptance of their fiat currency.
But with the technology getting everywhere and it is highly likely that the digital yuan will invade the roads once where the USA dominated unopposed. No one dared it. Speculation is rife that China’s step and chance with e-yuan are going to pay them rewards.
Ray Dalio, a successful financial expert and many like him are of the view that days are not far when the US dollar will lose its status as a reserved currency. The Chinese currency is easy to adopt because it knows no boundaries, and it deals directly with the end customer, ending the dependency of banks as mediators. So, once it launches officially, it will rush like a wildfire and accelerate like current in different financial markets.
The liquidity factor is one of the biggest factors that goes in favour of digital currency. Also, it has the power to bypass the institutional frameworks.
Furthermore, US senators showing concerns over the introduction of digital yuan during the Winter Olympics is testimony to the fact that the US dollar can find it difficult to be the best currency in the world. Also, it is a direct challenge to the USA and its economy. The Joe Biden government may not tackle it properly. So, digital yuan can unseat it.
Does digital yuan have the potential to replace or diminish the dominance of existing cryptocurrencies?
China has been working for the longest time to find a way to use its digital yuan. It started back in 2013 when the Chinese Central Bank barred the use of bitcoin. In 2017 September, several sanctions were put on mining, transacting and acceptance of cryptocurrencies. Now, the circular released by the Communist Party of China in June 2021 over cryptocurrency is the last nail in the coffin.
China wants to dominate the world through its digital revolution, and the digital yuan is not less than an elixir for it that can script magic for it. Nations across the world have already started talking about it. The cryptocurrency market has been crashing for a while after China, which has 80 per cent of the world’s total crypto miners, banned it completely in June 2021. So, it is now a matter of the official release. Several experts are saying that its valuation will go past bitcoin. Thus, the market cap of the currency can touch the pinnacle by going beyond 2 trillion dollars.