China’s e-Yuan to race against the US dollar in market dominance

Currently, China becomes the first major economy to introduce a blockchain version of its domestic currency, the Yuan.

According to reports on Bloomberg, the Bahamas Central Banks’ Sand dollar was the first introduced digital currency globally, making the country the first initiator of the new technology while China takes second place.

However, China’s leadership in introducing the new payment platform comes under the umbrella of economic gigantism relative to its global peers like the United States of America, Russia, France, Germany and Britain.

Government controlled stable coins or digital currencies such as the e-Yuan are linked to a specific asset or basket of assets, and they are controlled by a regulator such as the central bank or other official entity.

Indeed, China’s digital currency introduction is speculated to disrupt money as we know it. While e-payment is not a new phenomenon in the country, the novel e-Yuan arrangement is positioned to stir a new renaissance in the global financial market.

The People’s Bank of China (PBC) has begun to issue blockchain-powered digital currency to its citizens, and some stores have started to accept the e-Yuan as payment already.

Seven hundred fifty thousand recipients, using a lottery system, have been chosen in an experimental assessment to observe the acceptance of the digital Yuan by the citizens using a special application. So far, the acceptance rate has been appreciable, reports say.

It is expected that China’s government will increase the amount of digital Yuan in supply over time while the physical currency will decrease accordingly. Some experts believe that the physical currency may phase out eventually.

Digital currencies usually offer similar support from a central authority as does paper currencies. On the other hand, crypto currencies are decentralised, and some technological algorithms determine their values; their rapidly volatile nature accrues to market-driven forces that are, many-a-times, unpredictable.

Digital currencies, on the other hand, are expected to be more stable since the government, through its central banks, can manipulate their value.

The Chinese government hopes to build a monetary structure that can shield it from external intimidation and boost its regulatory sovereignty with the introduction of the e-Yuan. With this, China’s economic dominance in world trade is expected to spike, as America’s dollar must compete with Yuan-backed transactions, which is expected to be in enormous volumes in the coming times.

Facebook’s Mark Zuckerberg attempted to create a new digital currency called “Libra” but was challenged in 2019 by the US House of Representatives. His new invention, it was feared, would disrupt the current bank-dominated monetary system. China observed the proceedings and foresaw an opportunity.

No sooner, the Chinese government jumped on the creation of its digital currency.

“As soon as we put out this white paper on Libra, what we saw was China racing to try to build a system like this quickly, a digital yuan,” Zuckerberg said.

Furthermore, the Facebook billionaire exclaims, “We can’t sit here and assume that because America is today the leader that it will always get to be the leader if we don’t innovate.”

Eighteen months down the line, China has invested in the digital currency sphere, creating the most robust Central Bank Digital Currency (CBDC) in the world. The country has also been perfecting the Digital Currency Electronic Payment (DC/EP) system, which rivals two of the world’s most advanced payment platforms, WeChat and Alipay, also owned by China.

China also has, in its interest, cross-border ambition for the digital Yuan. “We must make preparations to break free from the US dollar hegemony,” Zhou Li, a former deputy minister, warns.

A report from the US Congressional Research Series in 2020 reveals that the US dollar makes up 90 percent of all transactions in foreign exchange while up to 75 percent of China’s reserves are believed to be held in US dollars. This gives the US an upper hand in the international market, which China frowns at and is willing to change.

Hence, it is presaged that the proper management of the e-Yuan as a well circulated, large-scale trade currency would render China’s DC/EP currency system the requisite stamina against the ubiquitous US dollar and unshackle the communist economy from the American-led global financial order.

The DC/EP platform is created to help monitor and control the people of China through their financials, and the new system could also help stall money laundering, illegal transactions and gambling, sources admit.

Some sources also hint that the country’s central bank could include an expiry date to the digital currency to stimulate spending during economic downturns. Further hints reveal that the e-Yuan could be used as payments by athletes and visitors during the forthcoming 2022 winter Olympics.

Ngozi Adeleye, a financial economist in Nigeria, noted that the world of digital currencies has come to stay. “China may have sparked the renaissance in this case, but other strong economies like the UK and Nigeria have plans underway to float their digital currencies. South Africa, Pakistan, India and Thailand are also getting set to launch their official crypto currencies soon,” she assures.

According to Adeleye, “The initial monetary order is changing, and the world as we now know it will experience a financial rapture different from the conventional outlook. Countries who wish to share in the global advantage it offers must be ready to innovate, or stay out of relevance”.