China appears keen to create digital yuan for local use and potential global transactions, report reveals
In April last year, China began testing the virtual yuan, becoming one of the first governments in the world to issue a central bank digital currency (CBDC).
CBDCs like the virtual renminbi are government-issued versions, using blockchain technology or the distributed ledger (DLT) of a country’s national currency. Like most cryptos, CBDCs could offer “greater transparency” on how individuals spend as a whole, “because the currency’s blockchain would act as a permanent and immutable record of all transactions,” writes the team from blockchain analytics company Chainalysis in a blog post.
Chainalysis also mentioned that China is introducing the digital yuan through public banking institutions and virtual payment apps such as WeChat Pay and AliPay, which are much more widely used in China than their American or European counterparts.
Pilot projects or virtual yuan trials are currently underway, with many “points towards Beijing 2022 Winter Olympics as an opportunity for the government to unveil its new CBDC to the world, as it plans to issue the digital yuan to visiting athletes, ”Chainalysis noted in a blog post while noting that in July 2021, users of ‘test have created more than 20 million digital yuan. portfolios and “executed over $ 5 billion in transactions with the new CBDC.”
As noted in the Chainalysis update, CBDCs have “far-reaching” implications for local and foreign policy, particularly when “deployed by an authoritarian regime that sees itself as a growing economic rival to states. -United “.
Dovey wan, Founder of the crypto investment company Primitive companies, told Chainalysis that a CBDC could provide “more granular control” over the economy.
As stated by Chainalysis:
“Under the fractional reserve banking system that all countries use today, central bankers can only interact with the economy indirectly, for example by changing interest rates. If the money supply existed entirely in the form of CBDCs, with all transactions recorded in a single central ledger, central bankers could exercise more control over financial flows. “
This could make monetary policy “programmable,” Wan said. For example, if the Chinese government wanted to “cool” the stock market, it could program a few lines of code and prevent funds from going to the stock market.
Wan also mentioned that the virtual yuan is said to be “easier for the elderly to use than the mobile payment apps that are so common now.” She added that CBDCs could have the potential “to make transactions cheaper for merchants by eliminating the need for third-party settlement of transactions.”
But it’s easy enough to see how “a centralized government-owned registry of citizens’ transactions could become a financial monitoring tool in the hands of the CCP,” the Chainalysis team wrote in its blog post.
Although Chinese residents do not have financial privacy as part of their banking system, the digital yuan “would give the government the ability to exclude individuals or companies from the financial system for any breach.”
While it is not clear “whether or to what extent the CCP would choose to use this ability,” the possibility of a “financial death sentence” would exist in the virtual yuan system, Chainalysis noted.
“China appears to have plans to develop a digital yuan for immediate domestic use, and possibly future international use. Improving monetary policy and financial supervision of Chinese citizens appear to be the short-term goals of the project, but in the long term, the proliferation of the digital yuan alongside other CBDCs could undermine the status of the US dollar as as world reserve currency.
Any US response to the initiative or launch of an ‘analogue’ digital dollar should ‘examine the issue of financial data, and how it can be used to build a stronger economy and maintain the country’s position in economic competition, while respecting the privacy of citizens. ”, Noted Chainalysis.
To view the full report and analysis for Chainalysis, click here.