The digital Yuan introduced by the Chinese government is gaining a lot of hype across the world. The PBOC (People’s Bank of China) aims to digitize the country’s circulatory coins and banknotes through the digital Yuan. In addition, it wants to catalyze the process of cashless payments in the country. In this blog, we will cover a few essential things about the Chinese digital Yuan.
Things to Know about China’s Digital Yuan:
It is different from Bitcoin
The digital Yuan is drawing a lot of comparisons to Bitcoin, but the two are significantly different. For one, the digital Yuan is under the control of the PBOC, while the Bitcoin is a completely decentralized and autonomous digital currency.
Secondly, the driving force behind Bitcoin is the blockchain technology – an open ledger of all executed transactions, which cannot be changed or interfered with retroactively. At this point in time, we are not very clear about the technical configurations behind the virtual Yuan.
It will help transmit China’s monetary policy
As we mentioned, the primary objective behind the digital Yuan is to have it replace traditional coins and banknotes currently in circulation. According to Fan Yifei, the PBOC Deputy Governor, the high expenses associated with the storage and production of physical currencies have led to strong demands for currency digitization. Alongside being complicated to use, coins and notes are easy to forge and can thus be used for illegal and illicit reasons.
The implementation of the digital Yuan will increase the efficiency and safety of payments, leading to a better monetary policy transmission that culminates in improved financial stability achieved through ‘controllable anonymity’. Anyone using digital wallets for the Yuan will have to disclose their transactions solely to the PBOC. Moreover, the PBOC will make sure there are no valuation discrepancies between the physical and digital Chinese currencies. In addition, by ensuring no individual or institution apart from the PBOC is able to produce the digital Yuan, the bank will be able to minimize the probability of counterfeits.
It will not be used to increase circulatory money:
According to the Wall Street Journal, the Chinese central bank will not be using the digital Yuan as a way to increase the amount of currency in circulation, as every new issued Yuan will essentially nullify a physically circulating Yuan.
Since the digital form of Yuan is backed by the PBOC, the officials will be able to assess every executed transaction – something that was not possible with cash. Through this ability, the government will be able to handle the overall money supply in a more effective manner. According to the PBOC, there will be a limit on the amount of virtual Yuan any individual can own, which will allow the bank to ensure their consumers’ privacy and security remains intact.
A two-tiered distribution system will be used to provide the currency to consumers:
The first of the two tiers will involve the country’s commercial banks receiving the virtual currency directly through the PBOC. Consumers can then turn to these banks to get their physical currencies replaced with the digital Yuan. Through this distribution model, the PBOC and the Chinese government aim to avoid intra-sector disintermediation, since the Chinese Central Bank will not have to deal with competition.
Final Word
China believes that the digital Yuan is setting a precedent that the world will soon follow. If you wish to purchase the digital currency through an approved distributor, please feel free to visit the bitcoin loophole trading app.
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