The Echo-nomist

In a major move, China just created a digital currency, controlled by the government.

Cryptocurrency is undoubtedly becoming popular. As are credit cards and payment apps like Paytm and PhonePe. China decided to hop in on the trend by introducing a coded version of its legal tender. Radical move.

One major advantage of bitcoin is- anonymity for the user. But that’s one thing the digital currency of China, called digital Yuan, lacks. The Chinese government knows where all your yuan has been.

The digital yuan is designed to replace the cash in circulation, such as coins and paper money. The People’s Bank of China (PBOC) will distribute the digital yuan to commercial banks. It’s the job of the commercial banks to distribute it to the consumers. This means the users can exchange their coins and notes for digital currency.

They have already given away millions of dollars worth of digital currency, which is being tested in the real world.

Cryptocurrencies use blockchain to keep track of ownership and transactions. But China is going to use a separate platform.

What’s one thing governments love??

Control.

Having a fully traceable digital currency will give them control. But they want even more control. For this they have imposed expiration dates, to drive adoption. Govt can create stimulus spending, by distributing free currency to people with an expiration date. This will stimulate spending in short term.

Digital yuan will help the Chinese government to intervene directly instead of doing it through commercial banks. It will help with faster and maybe more effective implementation.

The digital yuan is also a threat to the US dollar *gasp*

It’s a common known fact that the US Dollar is the Superman of global currency. Its stable and reliable rep has made it the world’s “reserve currency” for international purchases. Many international exchanges and transactions happen in dollars, even when America isn’t involved. After World War I, all currencies were pegged to the dollar (they introduced floating exchange rates, what we follow right now, later). The USD is used in 88% of foreign exchange trades.

This allows US to print as much Dollars as they need. No other country in the world has that luxury.

Now China shows up with its digital yuan and poses a threat to THE dollar. It presents an attractive alternative to the USD for sanctioned countries, and for people who don’t want to pay fees when they transfer money to family abroad.

US isn’t worried about the immediate effects of the digital yuan on USD as of now. They don’t currently plan on taking any action to counter long-term threats from China’s digital currency. They have, however, given a push to the development of digital dollar. In February, Powell said Fed was looking at the digital dollar very carefully. Their focus wasn’t to be the first, it was to get it right.

At this point, all the countries are puppets and US and China are fighting over who’s the puppet master.

There are more than 60 countries working on their own digital currency like the digital yuan. And if China’s experiment is successful, and shows positive results, more countries will be inspired to try it out for themselves. It will also give a boost to the countries already working on creating their digital currency.

We’re moving a step closer towards a paperless economy, and a step further from privacy.