China wants to digitize Yuan: This is the most important reason!

Although still a country famous for the popularity of electronic payment activities, the Chinese government wants to go even further. Reports from SCMP show that China is developing a “digital yuan version” and has started testing mobile applications for the currency for months at banks owned by the State Bank of China. water management.

Called DC / EP (short for Digital Currency / Electronic Payment), basically, the electronic currency version of this yuan also has some of the same functions as Alibaba’s online payment platform Alipay. and Tencent’s WeChat Pay, which allows the use of smartphone apps to make non-cash payments. Moreover, this app is also linked to the amount in the user’s bank card, similar to the above application.

China already has many online, cashless payment tools.

So, how is the yuan different from other electronic payment methods and why does China pursue digitization of its local currency?

What is the difference between DC / EP and other online payment platforms?

Although the form of use is relatively similar to other online payment platforms, but DC / EP has an important difference. It can still perform operations even in the absence of the Internet. Thanks to a function called “touch and touch,” two users can touch their phones together to make transfers without the need for Internet.

In addition, another difference is that with this cryptocurrency, users are not required to go through the banking system to perform the transfer like other online payment platforms. The amount of money in a user’s bank account can be converted into digital cash at a 1-to-1 ratio. With this digital cash, users can make transactions, hold money right on. phone without going through a commercial bank.

The screenshot is said to be a test version of the digital renminbi

Moreover, no matter how popular AliPay and WeChat Pay are, it is still two separate payment platforms of two trading companies. Chinese users may encounter the case of accepting payments from either platform, or accepting cash payments only, making payment more inconvenient. The DC / EP, meanwhile, is issued by the Central Bank of China, so it can be used in any transaction.

In short, DC / EP is like a combination of cash RMB with advantages of current online payment technology.

Why does China want to issue this cryptocurrency?

A digital currency issued by the State will create a revolution in the ability to monitor payment activities and financial systems nationwide. This is especially important when officials in the country want to have more power to track how their citizens spend their money.

According to Xu Yuan, a senior researcher at Peking University’s Center for Digital Financial Research, from a management perspective, the emergence of a digital currency available across the country will allow every Payment transactions can be done online. That means every cash flow in society can be traced back to its origin.

As more business and financial transactions are conducted online, information about cash flow and credit data will be stored in a common database. This database can be checked in real time, kept with digital records and can be used to check if its citizens are committing money laundering, tax evasion or other acts. illegal or not.

” In theory, with the launch of the digital yuan, there will be no transactions regulators will not see – every cash flow is completely traceable, ” said Xu. . ”

For a long time, strengthening the management of all aspects of society through monitoring the activities of citizens has always been the Chinese government’s focus. With the digitalization of its local currency, this will become even more convenient, especially when the digital currency Yuan completely replaces the current amount of cash in circulation.

The recent Covid-19 pandemic has become a catalyst to speed up the spread of contactless payments due to concerns that the use of paper money may increase the possibility of transmitting the new corona virus. Not only that, but the costs associated with issuing paper money have been reduced thanks to the shift to digital currency.

There has been no official launch time yet

China is not the first country to digitize its local currency. Previously, the Bank of England was one of the first institutions to initiate a global discussion on localized digitalization.

However, Sweden is the nearest destination in making such a currency, when testing technical solutions for an electronic krona in 2020. Previously, in November 2017, the bank Uruguay Central announces the start of the test release of the Uruguayan digital peso. In addition, the Central Bank of the Eurozone, the East Caribbean region have also launched similar initiatives.

However, so far China may be the first major economy in the world to realize this initiative.

Currently, China has not announced an official time for the launch of this DC / EP cryptocurrency system, but many speculate that it will be introduced to the public in 2020. In April, A screenshot of this digital currency has been leaked, but no official statement has been made.

If the implementation of this digital currency becomes a reality, and becomes popular in the future, it will not only turn China into a cashless economy, but it will also change business. There is also the possibility of banks, as well as ATMs, when people can directly borrow money from the central bank. However, to get there, there is still a long way to go.

Refer to SCMP