The Digital Yuan Launching is Approaching. Is This a New Threat to the Dollar?
Kataryna Kovtun May 14, 2020
Since June 2019, when China publicly announced the development of the digital yuan, the crypto community has been actively following the initiative of the Asian state in the payment sector.
Last week, China launched the first phase of testing its sovereign digital currency. As we wrote earlier, partners like McDonald’s, Starbucks, and Subway are participating in the experiment.
A representative of the Chinese central bank spoke about closed testing of the official currency DCEP, the name of which stands for “Digital Currency Electronic Payment”. A test launch of the project has already taken place in four cities. This will serve as the basis for improving the final product, which can be launched at the end of this year.
Digital Yuan Functionality
Last month, images of the alleged design of the application hit the web. Its interface is no different from other Chinese payment solutions such as Alipay and WeChat. Like these projects, the Chinese DCEP application will use NFC technology with support for Touch and Pay and QR codes.
Local media say some government employees will be partially paid in the new digital currency. Involving regular users in the testing process can be very useful.
The difference between the Digital Yuan and Cryptocurrencies
Unlike Bitcoin, China’s digital currency will not work on the blockchain. Also, it will not have any degree of decentralization. Sino Global Capital CEO Matthew Graham emphasized that China’s digital currency should not be considered a “cryptocurrency.”
The proposed digital alternative will be fully controlled by the People’s Bank of China. Commercial banks will act as providers of digital currency wallets. The PBOC will have access to the entire transaction history and identifiers.
Digitization of public funds is carried out to increase cost-effectiveness and ease of use, which characterizes the innovation. The main attention of China is focused both on increasing the efficiency of payments and on undermining the dollar.
Creating an alternative to dollar trading will help other countries act as they see fit, and not depend on The USA sanctions. From an economic point of view, the value of the dollar is also in doubt. Especially considering that the world’s largest economy is facing recession.
Is the Future of the Dollar in the Global Economy Threatened?
According to a Reuters poll this month, most financial analysts believe the dollar’s days are numbered. The same survey showed that most analysts believe that “over the next three months, the productivity of the currencies of developed markets is likely to show better performance than the dollar.” Speaking of “currencies of developed markets”, currencies such as the euro and the British pound should be considered.
The geopolitical power of US dollar dominance must also be taken into account. The US government intervenes in international trade almost unhindered. Among such cases are well-known US sanctions against North Korea and Iran, as well as their own American companies.
Alternative to the dollar
Sovereign digital currency is a functional alternative to the dollar settlement system. And it reduces the impact of any sanctions or threats of exclusion both at the country level and at the company level.
China’s infrastructure will work using the digital yuan, bypassing the traditional banking system of the rest of the world, — I do not blame the Chinese for their aspirations. But how do we respond to such innovations? Is there no need to digitize the dollar? Shouldn’t he play a role in digital systems?
The digital dollar initiative will hold power in the hands of the federal government, not a private individual.
China’s digital currency will not necessarily surpass the dollar as a means of payment. But now it already demonstrates the inability of the United States to hold onto the position of the world leader in innovation.
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