A smartphone software like Alipay or Wechat Pay makes it easier to get around and shop in China than a wallet full of yuan notes, especially in Shanghai and Beijing. As a result, the Chinese government has launched a pilot program for an official digital form of its yuan, with the possibility of a larger test at the Beijing Winter Olympics in 2022. Some experts believe that the virtual yuan might strengthen the government’s control over the country’s financial system and one day potentially change the global economic balance.
The vast majority of the money that is exchanged electronically is made up of credits and debits between bank accounts. With its digital cash, the government of China intends to create an electronic currency that is similar to banknotes and coins. It would be guaranteed by the government. It would be faster and more convenient to utilize virtual money than paper money, but it would also give the Chinese government unprecedented influence over the country’s economy.
About The Digital Currency Of China
In April, the program began with a small rollout in Shenzhen, Suzhou, Chengdu, and Xiong’an, a new “smart” city under construction southwest of Beijing, as envisioned by President Xi Jinping. A portion of the money was given to Suzhou residents via transportation subsidies, local media reports.
To prevent the digital currency from displacing other types of money, such as bank deposits, government officials must exercise caution. Deposits are needed by banks in order to lend money to borrowers. Alibaba Group Holding Ltd. and Tencent Holdings Ltd., two of China’s most successful digital companies, might potentially compete with the system.
That could be a contributing factor. Paying for goods and services via big internet companies’ mobile applications accounts for up to 16 percent of China’s GDP, compared to less than 1 percent in the United States and the United Kingdom. There is some concern among policymakers that too much of the country’s financial infrastructure is in the hands of a few businesses. At a conference last year, People’s Bank of China Governor Yi Gang stated, “Those major digital businesses present a lot of hurdles and financial threats to us.” So, as you can see, monopolies are a problem in this game since the winner takes it all. A significant portion of economic activity may be hidden from view if decentralized cryptocurrencies such as Bitcoin and Ether continue to grow in popularity. It’s been some time since China has allowed the usage of such coins, but the country quickly realized that the concept had some potential—as long as it had some degree of control. Since at least 2014, China has been doing research towards issuing its own china coin. According to Trivium China co-founder and head of economic research, Andrew Polk, “This has a very strong political will behind it,” Polk tells me. A chance to be a worldwide leader is what they see here.