China’s first digital currency showing promise

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Somewhere in the middle of 2020, world economic superpower China announced that they are developing a new digital currency. This is no surprise considering that China has already been using digital wallets like WeChat Pay and Alipay for some time now.

Spearheaded by the Chinese Government

The Chinese government has since started its pilot program for a digital currency and it is going to be official. The plan is to test it at the Beijing Winter Olympics in 2022. This has caused a lot of ripples in the financial markets where analysts believe that it could give the government more control over its financial system. In the long-run, it could well give more influence on the global economy to the Chinese government too.

The positive response so far

How this works is that digital cash is an electronic version of the Chinese Yuan. Instead of storing physical cash, people can now store their digital banknote or coin in their digital wallets accessible through their phones. The state will provide the backing in terms of the value of the currency. This has already begun last April (2020) with several cities involved. However, several factors need to be considered.

  • Competition – This could cause some form of challenge to the 2 most successful tech firms of China namely Alibaba Group Holding Ltd and Tencent Holdings Ltd.
  • Physical cash – Digital currency could crowd out physical cash. Banks still need deposits to circulate.

What about cryptocurrencies?

The Chinese government has been concerned with the rising influence of cryptocurrencies like Bitcoin and Ethereum. However, it acknowledges that there is potential in this market if the government had some form of control over it. As of January 2021, the second trial of e-cash has been launched when the government rolled-out some $3 million e-Yuan in Shenzhen. The program was under the DCEP or Digital Currency Electronic Payment.

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