Bloomberg: China’s digital currency could be a threat to both USD and bitcoin

Chinese people are no stranger to digital payment methods. Using Alipay or WeChat Pay makes it easier for them to travel and shop in Shanghai and Beijing than carrying a wallet with lots of cash. Now, the Chinese government has begun a pilot program for the official digital version of the currency. Meanwhile, a larger test program could be launched at the Beijing Winter Olympics in 2022. Some observers think that the digital CNY could strengthen the government’s power. to the country’s financial system and may one day even change the “balance” of global economic influence.

Currently, most electronic money transactions are credit or debit only at different banks. China’s digital currency is designed to be an electronic version of banknotes or coins – “located” in a smartphone wallet on a smartphone instead of a handheld wallet. The value of this currency will be supported by the state. However, the cryptocurrency will trade faster and easier to use than any paper currency and give the government its unprecedented control over paper money.

This program started on a small scale in April in the cities of Shenzhen, Suzhou, Chengdu, Xiong’an (Hebei Province). Local media reported that the digital currency was distributed as strange payments to certain individuals in Suzhou, or to pay salaries for government employees in May.

One thing that officials in the country need to be careful about is that the digital CNY does not surpass the function of other forms of money, such as bank deposits. Banks need those deposits to extend, such as credits, to borrowers. The system also has the ability to compete with two giants, Alibaba’s Alipay and Tencent’s WeChat Pay.

The digital CNY could play a very important role in overseeing the financial system of Xi Jinping’s administration. Consumer payment by smartphone apps of big tech companies accounts for 16% of China’s GDP, while the figure in the US and the UK is less than 1%.

Lawmakers have expressed concern that the market share in the financial market is in the hands of a few large companies. Last year, the PBOC Mini – Yi Gang, said: “Big technology companies give us lots of challenges and financial risks. In this game, the winner will have everything, so unique. right is a challenge. ”

Meanwhile, the development of digital currencies like Bitcoin and Ether has put the risk of a series of major economic activities taking place outside of policymakers’ control. In recent years, China has banned the use of cryptocurrencies but took advantage of this idea – because it provides control.

Andrew Polk – co-founder and head of economic research at Trivium China, said: “This digital currency has a very strong political driving force behind it. They see this as an opportunity to gain position. leader in the world. ”

Although it will take several years for the digital currency to be officially used nationwide, China’s moves have created a new threat to the “dominance” of the US financial sector. Aditi Kumar and Eric Rosenbach from Harvard Kennedy School, writing in Forreign Affairs in May, that the digital version of CNY could allow Iran and other countries to evade U.S. sanctions or trade without discovered by the US. The reason is that, in the future, digital currency transactions can be made across borders without the need for international payment systems.

However, not all experts have similar concerns. Former US Treasury Secretary Henry Paulson also commented on Foreign Affairs that, even without the threat from China, the threat to the position of the dollar is the favored currency in the world. “not a serious problem”. Although the CNY can be highly “mobile” around the world, the USD still receives widespread confidence. Moreover, oil and other important commodities are valued in USD.

When CNY is officially used, Chinese people can transact with digital wallets. They do not need a bank account, which will make 225 million people unable to access the banking system. In the rural sector, trading cryptocurrencies can spur growth and reduce fraud when it is easier to control the currency.

Even when used nationwide, it is still unclear whether the currency will be “exported”. It is possible that the digital CNY will have a great appeal for a secure international payment method with fast transfers, as foreign exchange transactions can now take 1-2 days to complete. . In addition, the popular CNY could also encourage foreign countries and people to use Chinese technology and eventually the currency.