- Tram Ho
It is true that the digital yuan that China is about to issue is similar to other digital currencies in that it will “tokenize” the currency. However, that is the only common point. Expected to launch in 2020, the currency will be backed by the Central Bank of the world’s second largest economy, backed by a portion of the Chinese government’s ability to permanently impose taxes. And countries are also eager to apply the idea of developing a national digital currency.
We don’t know much about the digital currency so far, except that China has been focusing on developing this project for the past 5 years and is now ready to deploy it in practice.
The focus of the project is that the cryptocurrency is developed on a private blockchain – a peer-to-peer network that helps share information and verify transactions, in which the Central Bank of China controls who is involved. this network. The digital currency will be provided through the banking system and will replace part of the physical money in circulation. This is not difficult because of the widespread presence of e-wallets developed based on QR code scanning technology such as Alipay and WeChat Pay.
Initially, the scope of application will be very small, but the digital currency can make a lot of turning points for not only traditional banking operations but also the floating exchange rate system after Bretton Woods. which the world has been relying on since 1973. According to fintech analyst Gautam Chhugani of Sanford C. Bernstein & Co., China is undoubtedly making blockchain technology and the digital yuan a national strategic priority.
From the 17th century to the present, the most important thing for the banking industry is the ledger – a document that records transactions to create confidence in financial institutions. When Peter in Vancouver agreed to send money to Paul in Singapore, they were forced to use a string of intermediary financial institutions because there was no single ledger in the world that recorded both. The distributed ledger of blockchain technology, meanwhile, makes this unnecessary. Pual will generate a secret code, and share that code (in the encrypted version) to Peter – who will use this code to create an electronic contract to later pay to Pual. The network of intermediary banks – which is very complex and expensive – becomes superfluous, especially when the total value of transactions crossing the Chinese border reaches 124 trillion USD per year.
China is also not the only country experimenting with the application of blockchain technology to the banking and financial system. Cross-border payment transactions processed quickly and at low cost is one of the applications that JPMorgan Chase’s Quorum platform brings. Quorum is a platform based on Ethereum, currently used by the Central Bank of Singapore to test the national digital currency.
We are still in the early stages of reclamation, but if blockchain technology can handle a large number of transactions at the same time, the digital currencies can replace not only physical cash but both reserve money of banks.
That will be the moment to change the game. The amount of reserve money at 1 Central Bank is maintained by the receiving banks. The yuan – or the Singapore dollar, the Indian rupee – can replace this system, allowing anyone who holds them to have a deposit at the central bank, weakening the toxic role. rights in creating money supply of the government.
But why do the central banks want to destroy the banking system they manage? To find the cause, look at Europe and Japan, where negative interest rates are eroding everything. Banks are hungry for profit because although the central bank requires them to pay fees when depositing money at the central bank, they cannot easily transfer that burden to depositors. If the global economy has been in deflation for a long time, official digital currencies are at least an effective way to loosen currencies without burdening the banking system.
A more important reason is that technological advances prevent us from maintaining the status quo forever. It is no coincidence that China stepped up the development of its digital currency after Facebook announced the Libra project – a digital currency advertised as a possible USD replacement. Libra is currently facing a lot of legal difficulties and skeptical regulatory agencies. But if the Libra are issued as Spotify rewards cards at 7-Eleven stores, there will certainly be a demand for widely accepted, well-valued digital currencies in many countries. compared to a basket of legal currencies and can be used in investment activities as well as global trading transactions. If not Mark Zuckerberg, then eventually someone in Silicon Valley succeeded, shaking the power of the central banks.
The changes that the nation’s digital currency will affect not only the monetary banking system but also politics. Unlike cash, digital currencies are highly transparent.
The year 2020 is about to come, and perhaps we are about to enter a decade in which the world has changed dramatically, not only in the field of financial and monetary but also in terms of privacy and political system.
Source : Trí thức trẻ