China has emerged triumphant among the world’s most powerful nations in the race to develop a central bank digital currency (CBDC). Following the conclusion of the DC/EP trial in September, the Asian behemoth has started to roll out digital currency across important e-commerce platforms in the country. This page provides an introduction to digital money.
What Does DC/EP Stand For
China’s national currency, the yuan, is represented digitally through the Digital Currency Electronic Payment (DC/EP). For the last five years, Chinese central bank deposits have been utilized to support the DC/EP. Under the current system, banks must digitally convert a part of their yuan coin assets and transfer them to businesses and consumers using mobile technology.
What Distinguishes DC/EP From Other Cryptocurrencies
The main difference between DC/EP and other cryptocurrencies is whether they are classified as “currency.” The legality of utilizing cryptocurrencies to pay for goods and services in China is still debatable, although the DC/EP may be used as a payment mechanism and accepted as legal currency.
There are two additional significant contrasts between DC/EP and the present crop of cryptocurrencies. The first focuses on decentralization. The term “decentralization” refers to the notion that the economics and supply of a cryptocurrency are not controlled by a single entity. In contrast, China’s government will have total control over the levers of the digital yuan coin.
The digital yuan is distinct from other cryptocurrencies in that it is completely anonymous. Whereas the former may be traced back to its source in certain cases, the latter cannot. As previously mentioned, Chinese authorities would be able to monitor and track the flow of currency in their economy.
What Are The Benefits Of The Digital Yuan For The Chinese Government
First and foremost, the digital currency will enable the Chinese government to better track the flow of money through the Chinese economy and make better planning decisions. Although cash remains the most often used form of payment in China, new payment methods that do not use the country’s card system have increased in popularity in recent years. These new payment methods, which rely on digital money transfers, include the use of mobile devices, QR codes, and token systems.
Companies such as AliPay and WeChat by Tencent Holdings Limited (TCEHY), both of which are subsidiaries of Alibaba Group Holding Limited, are leading the way (BABA). In this changing financial world, a digital yuan is a logical fit. Furthermore, since they are digital, digital tokens are easier to track than cash.
Second, with the introduction of a digital yuan by YuanPayTeam, China’s unbanked population will be able to enter the mainstream economy. Because China has by far the biggest number of people without bank accounts, many more Chinese residents will be able to participate in mainstream economic activity without having to pay for expensive banking products and equipment.
Third, the digital yuan may assist the renminbi in gaining global reserve status. Since the financial crisis a decade ago, there has been a rising debate among international bankers and economists regarding a viable alternative to the US dollar for international business.
Given that China’s currency is the principal mode of payment in the world’s second-largest economy, this is a no-brainer. Despite accounting for just 4% of all international settlement transactions, the renminbi accounts for 88% of all US dollar transactions. The currency will need to be digitalized in order to speed up international transactions and enhance the currency’s appeal among overseas businesses.