In the 1970s, around 80% of the world’s currencies were pegged to the U.S. dollar. However, it has caused some concern for economists, who fear that this reliance on one currency could lead to instability and a slowdown in international trade should something happen to this currency. If you want to learn more about digital yuan, click here for more details.
One growing solution is to have electronic versions of non-U.S. currencies available via bank accounts, or “CBDCs.” So why can’t we carry digital versions of our money with us in a digital wallet? Many experts provide details on how CBDCs work and why they are advantageous over paper money in today’s age of connectivity and digitization. In the 21st century, cash is gradually seen as anachronistic and has been replaced by electronic payment systems and digital money transfers.
One example is businesses adopting electronic payments instead of cash and checks. According to a few reports, the U.S. electronic payment transaction volume increased by more than 50% from the previous year to reach $1.3 trillion in 2015 alone. Digital Yuan, the recent shocking move in china toward a more digitized monetary infrastructure, can be a potential threat to increasing robust dollarization across the globe. Let’s discuss how the digital yuan threatens the USD-dominated economy.
Why are people moving towards electronic payments?
The reason behind this growing adoption of electronic payments is that there is an increasing demand for faster and more secure settlement of transactions. In addition, the increased adoption of these payment systems and digital money transfers has enabled nearly all individuals to make payments from anywhere, anytime, by using mobile phones and computers with internet connection.
The digital yuan consists of three parts: a digital wallet, an encryption system, and point-to-point authentication. Digital money transfer is able to be made by mobile phones with no limitation of distance and time. A few critics have mentioned that CBDCs will adversely affect the international monetary and domestic financial markets, especially when combined with technological developments such as electronic payment systems, electronic trading systems for bonds and equities, and virtual currencies like Bitcoin.
Feature of digital Yuan:
It offers the minimum transaction convenience and maximum safety of cash with the speed, efficiency, and convenience of electronic payments. The developments in the digital yuan have the potential to transform the current monetary system with its faster, safer and cheaper characteristics.
A few reports indicate that yuan payments will be conducted over smartphones, tablets or computers without any physical currency. The encryption system is built on a distributed infrastructure that supports anonymity and safety by using strong cryptography to protect user data.
Risks of digital yuan
Some critics say that CBDCs are a threat to the current monetary system and that they will lead to a potential financial crisis. In addition, they believe that CBDCs are a step in the wrong direction for developing economies because they could potentially increase unequal and inefficient financial systems.
The critics also worry about the stability and security of this digital currency and its ability to adapt to new technologies from other countries. In addition, this law is based on a centralized and controlled network infrastructure controlled by banks, which is not efficient enough in ensuring security and privacy.
How is the digital yuan a threat to dollarization?
Many governments view one’s own central bank and currency as a catalyst for development. China will be able to ensure the value of its currency and be protected from any financial crises that may arise.
With the announcement of this law, the country is also trying to further its internationalization strategy by providing more opportunities for businesses, financial institutions and individuals. As a result, it will create more chances to attract international investors through increased participation in the Chinese economy. In addition, the move by China is an attempt to increase its influence on the global economy through a stable currency.
The development of a viable CBDC will likely affect how money is used, accepted and stored in both developed and developing countries across the globe. Moreover, if these currencies become more widespread, they will affect all countries involved in international trade.
Digital Yuan: A Tool for Internationalization:
The CBDC will ensure that China remains the world’s largest manufacturer, primary exporter and consumer of manufactured. China is also one of the world’s largest energy consumers and has a massive demand for energy resources. It will enable China to be a significant player in global economic development. The digital yuan will also enable more foreign trade with industrialized nations, especially with the country’s growing economy.