In March 2016, the DRC adopted a proposal to issue a CBDC. Although China’s policymaker’s hesitation can be attributed to skepticism about CBDC, experts thought it would be a pity if China did not launch its own CBDC. To trade in bitcoin with the help of advanced AI technology; the platform is suitable for even novice traders. It is because digital assets are easier to trade and transfer than physical assets and can significantly reduce operations costs. If you are interested in Digital Yuan, you may consider knowing about Bitcoin and Cash
However, digital currency is still far from becoming mainstream and is often deemed an alternative by those who oppose dollarization. So why are people not convinced? By comparing the advantages and disadvantages of e-CNY with the US dollar, we will try to answer this question based on facts rather than conjecture. Advantages of digital Yuan over US dollar.
E-CNY and the future of china:
E-CNY will be able to integrate with the whole banking system. As a result, it will significantly reduce costs regarding cross-border transactions and avoid issues such as uncertainty of convertibility and delays in settlement. In addition, due to integration with the banking system, e-CNY can be used as a substitute for the US dollar in international trade, financing, and capital outflow.
E-CNY is more durable than fiat money. With e-CNY, you can pay a bill at a local shop without worrying about its convertibility into US dollars or whether it can be repaid when you go abroad. In addition, because the digital asset is not a physical asset, it cannot be damaged, and the risk of theft is greatly reduced. It can significantly reduce transaction costs, especially cross-border trade and financing.
E-CNY will significantly improve central control over the money supply. E-CNY can eliminate the seigniorage of printing currency, which is almost zero nowadays. According to some experts’ estimation, if China stops issuing half the money in paper form by 2020, it will save USD 11 billion per year. It will also let the central bank control inflation better and adjust monetary policy more efficiently. Let’s discuss everything you should know about how the digital yuan threatens dollarization.
So far, experimental versions of a Central Bank Digital Currency (CBDC) have been launched by the banks of Canada and Singapore. E-CNY will help increase efficiency in settlement on financial markets. Currently, all payment instructions should be processed by people through the clearing center, which will take a long time and cause significant losses in cash flow. E-Yuan will enable transactions to be instantly completed when both the buyer and seller are online. It is expected to create significant synergy for online businesses such as P2P networks and OTC trading platforms. It can also lower portfolio risks for investors and reduce transaction costs for asset managers due to enhanced risk control.
Can digital yuan replace the dollar?
Central banks issue paper money due to their limited capability to manage monetary policy efficiently. In the past, currencies were backed by gold and silver reserves, but except for some countries, such as Iran and Venezuela, most paper currencies are not backed by any physical assets. In a hyper-connected world where China is also promoting the One Belt, One Road Initiative and pushing for the globalization of capital markets, digital currency is an ideal solution for cross-border settlements. In addition, the rapid development trend of mobile internet and blockchain technology has made it even more convenient for people to use digital currency daily.
China has already adopted a national social credit system, facilitating the integration between e-commerce and e-CNY platforms. So, for example, now we can buy fresh food online from Alipay and automatically convert the online payment into our real-time bank card account. If this is successful, it will reduce many issues currently associated with digital transactions, such as fraud risk and money laundering.
In summary, e-CNY can significantly improve central control over the money supply and make cash flow more stable. Therefore, e-CNY has excellent potential to enable effective monetary policy management in China and can soon become a threat to dollarisation. In short, the digital yuan is a significant threat to the global impact of the dollar. Hence, the currency policy of countries in the world will have to change for the betterment.
Global impact of digital yuan:
Five years ago, most of the world’s central banks started to build a digital payment system based on Blockchain technology, which has credibility and traceability. The government of Singapore also released a white paper in November 2016, proposing to launch a CBDC by 2020.
E-CNY will have significant positive effects on cross-border trade. It can help build an efficient, transparent, low-cost payment settlement system for Chinese corporations and foreign businesses. In addition, the rapid development of mobile internet is facilitating the rise of cross-border e-commerce, which means that most goods are sold or bought across borders nowadays.