China’s central bank is reportedly making strides towards launching a digital currency (not a cryptocurrency) tied to the yuan. Here are three things to know about the proposed central bank digital currency (CBDC).
Financial Monitoring and Control
Anyone remotely familiar with China knows that electronic payments are already a huge part of the country’s socio-economic fabric. So, why launch a digital currency in a country where people hardly make cash payments?
According to Mu Changchun, an official of the People’s Bank of China (PBoC), the soon to be launched CBDC will see people’s identities linked to their wallets holding the digital coins.
Thus, Chinese authorities will have another avenue to monitor the financial dealings of its citizenry. According to Bloomberg, Fan Yifei, the PBOC Deputy Governor, has previously suggested that the CBDC could have daily transaction caps for individuals.
Also, commercial banks will submit daily reports of the transactions carried out by users via the digital currency.
Worried About Libra
China is reportedly expediting efforts to launch the digital yuan as a counter to Facebook’s Libra project.
As previously reported by Bitcoinist, Beijing isn’t keen on the economic ramifications of the Libra cryptocurrency potentially gaining a foothold in the country.
Pegged to a basket of fiat currencies like the U.S. dollar with American firms likely participating as nodes, authorities reportedly fear that significant Libra penetration in China will hurt the country’s capital control efforts.
And all of this is happening amid the backdrop of the current economic tussle between China and the United States.
While there is no timetable on Libra’s cryptocurrency launch, efforts are underway to secure a payment system license in Switzerland.
Not a Cryptocurrency
Finally, the proposed CBDC will most likely not be a cryptocurrency in the real sense of the word.
Earlier in September, Bitcoinist covered the Binance Research report which hypothesized that China’s digital RMB will operate as a ‘two-tier system.’
This PBoC will most likely peg each digital yuan to an actual yuan and distribute same to commercial banks. These banks will, in turn, redistribute the digital coins to interested consumers for retail payments.
Given China’s current electronic retail payment ecosystem, it remains to be seen how the CBDC will compete with already existing options like Alipay and WeChat Pay.
Do you think the proposed digital yuan will be able to compete with existing payment options? Let us know in the comments below.
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