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China’s Digital Yuan will Change the World
There’s a lot of FUD around the “crytosphere” lately, discouraging crypto adopters, from environmental concerns to scares of countries’ outright bans. One argument I find pretty interesting is China’s development of their digital currency – a digital Yuan (e-RMB). Here’s the thing, the digital yuan would not kill crypto, to understand why, let’s first understand the digital yuan.
What it IS:
It’s a Central Bank Digital Currency (CBDC), meaning it’s a digital currency issued by a country’s Central Bank. It’s a digital version of a renminbi note, represented and tokenised on your phone with strings of code, like Bitcoin. When implemented, it can be integrated into e-payment systems ie. WeChat, Alipay for daily transactions. It’s to reduce China’s dependence on USD (check out Hong’s piece on the Petrodollar for why that is). It has its own transaction path (doesn’t go through SWIFT). Hence much lower transaction fees, incentivising its use in international trade. It provides additional info with a digital logistics system, ie. package delivery status when you buy something but on a global scale including the product’s manufacturing, shipment etc.
What it is NOT:
It’s NOT an e-wallet. E-wallets just display the balance from your bank account, the money is not on your phone. It’s NOT a cryptocurrency. It’s NOT decentralised because it’s backed by the Central Bank. It’s NOT used to replace USD as the reserve currency. (Central Banks all around the world still need to store multiple currencies for their reserves to stabilise the economic system and to spend in that currency when needed)
Although CBDCs and cryptos use similar technologies, their features and goals are widely different. They each occupy different financial spaces for different uses and will coexist. One won’t destroy the other, just like how crypto has not replaced institutional currencies.
China isn’t the only country developing a CBDC, the Bahamas wants to increase financial inclusivity through their CBDC, UK is developing Britcoin, Sweden and EU have their plans too. That said, widespread adoption by China will be poetically fitting too as the civilisation that invented paper currency to the nation that digitised it.
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