Digital Yuan Explained: What It Will Mean To You?
The Chinese digital yuan will first need to shake the market positions of local e-payment giants before thinking about competing with the US dollar internationally, says Martin Chorzempa of the Peterson Institute for International Economics..
«Many people talk about the digital yuan as the driving force behind the internationalization of the Chinese currency. I think that the project first needs to defeat Alipay and WeChat Pay in its home market before starting to impose a fight on the US dollar.», – said Chorzempa, PIIE Senior Researcher.
«In fact, it will be a rivalry between the central bank and tech giants.», – he added.
The Central Bank of China is developing the digital yuan, and it is expected to work similarly to transactions through existing payment applications. On the eve of Beijing allocated $ 1.5 million for testing digital currency.
According to Martina Chorzempa, one of the main reasons driving the introduction of the digital yuan was the desire to create a government-supported and controlled alternative to such giants as Alibaba Alipay and Wechat Pay, which currently handle about 95% of digital payments in China.
Over the past few years, digital payments have supplanted cash as the predominant form of payment in China..
«The digital yuan is something truly unprecedented among the largest economies. China is the most advanced country in the field of digital currency adoption», – said Chorzempa
He believes that the digital yuan has very little to do with cryptocurrencies such as bitcoin known for its high price volatility.
«I would say that the security level of the digital yuan is very high and there are practically no risks. It is designed for the same value as any ordinary yuan, so there shouldn’t be any price fluctuations», – said Chorzempa.
Resellers selling digital currency in China are expected to be «completely safe and carefully regulated» as long as they are sanctioned by the government.
Experts believe that there is no need to worry too much about the security of the digital yuan in the e-wallet regulated by the Central Bank.
Besides China, Sweden is expected to be one of the first advanced economies to launch a digital currency..
Since Facebook first suggested launching cryptocurrency Libra, central banks were seriously concerned that a private technology company «can take on their role» similar to how Alipay and WeChat pay dominate China’s payment market.