Aniket Kale Trader & Financial Engineer at Marketcalls plus a B Tech graduate in Computer Science. Interested in Trading Software, Building Trading Systems, Automated Trading & Volume Price Analysis

Things you need to know about China’s Digital Yuan

1 min read

China has begun the trial of its new digital currency “e-RMB”, in four of its major cities. A full-fledged launch could be expected in May 2021. This move, in China, could potentially change the finance world forever. Let’s understand what “e-RMB” is and what effect it could have on the world.

“e-RMB” stands for electronic Renminbi. Renminbi is the official currency of China whereas Yuan is the unit of Renminbi currency. The project has been in development since 2014. “e-RMB” is not a cryptocurrency. The PBoC’s Digital Currency Research Institute did not want a blockchain-based approach as it would have led the currency to be decentralized with distributed digital ledger, which in simple terms means, it would not have given China complete control over the currency and China did not want that.

This digital currency will be pegged to the Chinese national currency and will have the same legal tender status of cash. The transactions of “e-RMB” are possible even without the internet and can be used to make contact-less payments.

The People’s Bank of China will be the sole issuer of the digital Yuan, initially offering digital money to commercial banks and other operators. The “e-RMB” will be “tokenized” money, fully backed by the central bank of the second-largest economy. The token will be a private blockchain, a peer-to-peer network for sharing information and validating transactions, with the People’s Bank of China in control of who gets to participate.

Effects on the world, of the digital currency backed by the 2nd largest economy of the world:

  1. Replacing the Dollar: A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level
  2. Financial Globalisation of China: It may also facilitate integration into globally traded currency markets with a reduced risk of politically inspired disruption
  3. More control: Because cash transaction were offline and transaction data from existing payment platforms were scattered, the Central Bank of China (PBoC) was unable to monitor cash flow in real-time. With digital currency, it has become possible to monitor cash flow in real-time.
  4. Rise of private money: There is a growing sense that central banks worldwide should issue a digital version of cash to prevent the “privatization” of money by commercial entities and IT firms.
  5. Impact of COVID-19: The still-raging novel coronavirus pandemic and the higher health and hygiene awareness among masses have also added impetus to the trial of the digital currency. There has been a dramatic drop in the cash in circulation in Wuhan, the initial ground zero of the virus, most retailers there refuse to accept coins or paper money as a precaution against the highly contagious pathogen. The world is likely to follow this trend.
  6. Regulatory Control: As the regulators gain more control over the flow of the money and with added real-time monitoring functionality the privacy of the user of the digital currency is at a huge risk.

It will start small, but the digital Yuan can disrupt both traditional banking and the post – Bretton Woods system of floating exchange rates that the world is living with since 1973.

Aniket Kale Trader & Financial Engineer at Marketcalls plus a B Tech graduate in Computer Science. Interested in Trading Software, Building Trading Systems, Automated Trading & Volume Price Analysis

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One Reply to “Things you need to know about China’s Digital Yuan”

  1. “There has been a dramatic drop in the cash in circulation in Wuhan”

    BS! Most money transactions in China are already in digital form via the private companies of Alipay and Wechatpay.

    Don’t pretend you know China.

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