China creates digital Yuan, a paper bill in electronic form, the first of its kind, in a sweeping crackdown on western cryptocurrencies. In effect, Bitcoin has already suspended all its operations in China as it heats up on western virtual currencies.
China takes the credit for the invention of paper bills, but the dollar has become the reserve currency for the financial market. However, China has now created a virtual currency in its bold attempt to constrain the insurgence of western currencies and spearhead its own legacy.
China announced the success of its experiment with digital Yuan currency in Suzhou City, near Shanghai. It was a preliminary mock test in miniature in which the Chinese government gave 181,000 consumers ¥55 in digital wallets to spend in the Double Fifth Shopping Festival between May 1 and 5.
In the financial experiment, consumers were given an app that came with a digital wallet to make purchases from participating stores. It was a very basic and straightforward process. The Chinese government had already begun testing in April for 500,000 people across 11 designated regions.
What Is Digital Yuan?
The digital Yuan is a paper bill in digital form on a blockchain. The major difference, however, is that while other cryptocurrencies such as bitcoin and ethereum stay outside the global financial realm, the Yuan is regulated by the central bank. It is perfectly legal and backed up by the government which helps it earn the consumers’ trust and confidence.
The digital Yuan is trackable. The government will be able to track down on real-time use of the currency. It is also programmable and it had an expiration date to encourage consumers to spend them quickly.
To maintain the stability, the Chinese central bank regulates and issues it which makes its value just as equal to the regular physical bills.
As the government is fully running the course, China is set to become the first country to put its digital currency on a permissioned blockchain. It is estimated that China will soon issue the digital Yuan countrywide within one year in installments.
The Global Implication
No doubt the immediate effect of the digital Yuan was on Bitcoin and others. Soon after the digital Yuan’s successful experiment broke the news, the American crypto Bitcoin had slumped nearly by 50%. Meanwhile, Ethereum also fell 60% down.
The Chinese government has been at loggerheads with the US over accusations that it devalues the Yuan to benefit in foreign trade. Now, the communist country has further upped the ante to secure its own financial sovereignty.
The issue is the Chinese Yuan in its digital form may destabilize the financial market around the world. Due to its exponential manufacturing industry, and global investments, The Chine currency has the serious potential to shake the financial market of the world.
The dollar hegemony has always faced impediments from time to time but has remained the de facto reserve for years. But its major competitor has been Yuan. The US has often alleged China of manipulating the Yuan to leverage its export-based industry. Now the digital Yuan may worsen the currency war once again.
The US has tried its best to contain the Yuan so far, but the digital Yuan may turn the tide in its favor against the US stronghold on the world economy with the dollar.
Due to China’s growing investment abroad, it carries potential to shake up the financial market around the world. The Bitcoin has already incurred its wrath and may continue to in coming months. What do you think of the Chinese digial currency and its possible global impact? You can share you input in the comments section below.