By Shelly Melancon (Switzerland)
Countries around the globe are taking bold steps in launching a central bank digital currency (CBDC) to keep up with the trend of cryptocurrencies. While the UK, Canada, US, Israel are looking to release their CBDCs, China seems to be leading the pack with its digital Yuan. The Republic of China has already begun pilot testing the digital Yuan in some cities and is also looking to integrate it into the country’s banking system. Some other countries are only settling for the regulation of crypto space.
While China has been at the forefront of the regulations of cryptocurrency space that it recently issued a ban on crypto mining activities in the country forcing miners to close shop, it has also been leading the quest for CBDCs. The Asian giant had proposed the issuance of CBDCs in an official statement some years ago making it a pioneer alongside the Bank of England which discussed the prospects of a CBDC in 2015. China wants to take advantage of the distributed ledger technology (blockchain) which is still at its nascent stage.
China’s actions on cryptocurrencies and mining activities is a calculated response towards paving the way for the successful adoption of the digital Yuan. Expert analyst Lucas Nuzzi said in a tweet on June 21 that China’s stance on Bitcoin should not be surprising as they intend to monitor oppositions; hence their release of the digital Yuan. He further said China is against Bitcoin because it is decentralized and usurps the centralized banking system.
Also read:China Plans to Usurp the US Dollar as Global Reserve Currency
With the digital Yuan, China plans to overthrow the US dollar from its position as the global reserve currency. The US Dollar forms 59% of the reserves of banks around the world. China and the US have in recent times been opposing each other on certain issues, especially the trade wars during former US president Trump’s administration which saw the US ban popular device manufacturer, Huawei, from the US market. China had also retaliated.
An official of one of China’s economic bodies was quoted to have said that with enabling global acceptance of the digital Yuan, China hopes to bypass the hegemony of the US dollar. Also, the Republic of China hopes that by enabling global use of the digital Yuan, it will be able to exercise more control over its economy through its ability to monitor the whole CBDC ecosystem. China believes the digital Yuan would help with enacting its monetary policy.
Managed Anonymity
China opines that with the digital Yuan, it would be able to supervise unlawful activities including money laundering which according to it thrived as a result of the decentralized nature of cryptocurrencies. At one point, China had issued directives to cryptocurrency exchanges in the country to tighten their KYC/AML guidelines. However, concerns have heightened over what China termed as ‘managed anonymity’ which most people believe the communist country would abuse.
At present, the Chinese government is in cahoots with banks around the country to distribute the digital Yuan to the people. According to reports, some banks have begun creating digital wallets for their clients while a few other banks lack the technical framework to incorporate it. With the fears being expressed over the misuse of the control the CBDC gives the government, it will certainly take a long while before the digital Yuan is embraced.
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