China is one of several countries gearing up to issue digital currencies and is poised to take the next major step toward launching central bank digital currency (CBDC). On June 5, the People’s Bank of China (PBOC) will kick off a large-scale test by handing out 40 million digital yuan (US $6.2 million) through a lottery. 200,000 people will each receive 200 Yuan (approximate value U.S. $31) as digital currency to spend at nearly 2,000 retail outlets. The digital renminbi has the same status as legal tender. This latest trial will take place between June 11 and 20.
The PBOC hopes to offer the sovereign digital currency to the public next year and plans to have it ready in time for the 2022 Winter Olympics. Limited trials are already underway in four cities across the country. The Chinese sovereign digital currency is expected to eventually replace paper banknotes.
China cracks down on cryptocurrency
China’s Digital Currency/Digital Payment (DCEP) system is not a cryptocurrency. It is issued by a central bank, the PBOC, while cryptocurrencies like Bitcoin, Dogecoin, and Ethereum are decentralized, Tech in Asia points out.
Beijing has restricted the use of bitcoin and other cryptocurrencies for several years. In fact, cryptocurrency trading has been halted on about 100 exchanges in China since 2017.
Experts and analysts weigh in
Experts and analysts believe the launch China’s digital renminbi would probably have important implications for the global status of the Chinese currency.
In HSBC Reserve Management Trends 2021, Hui Feng says a digital renminbi would be expected to “reduce transaction costs” and “increase efficiency” for internal payments and settlements. This would “facilitate [the renminbi’s] international acceptance and popularity”, says Feng. (CentralBanking.com)
The CEO of Sino Global Capital Matthew Graham told RT.com he believes digital yuan could encourage other countries and people overseas to get on board with China’s technology and currency.
Experts and analysts debate whether China’s plans represent a new threat to US financial dominance. For example:
- Aditi Kumar and Eric Rosenbach of the Harvard Kennedy School claim the digital version of the Chinese renminbi could eventually allow Iran and other countries to more easily evade US sanctions or move money without it being spotted by Washington. In an article for Foreign Affairs, they express concern that one day it might be possible to transfer the digital currency across borders without going through dollar-based international payment systems. (RT.com)
- In contrast, former US Treasury Secretary Henry Paulson believes the threat to the dollar’s status as the world’s preferred currency is “not a serious concern.”He points out that even if a digital yuan proves to be highly mobile around the world, the US dollar is widely trusted, and oil and other key commodities are still priced in it. (RT.com)
One thing that does seem certain is China’s determination to launch a successful central bank digital currency within the next year or two. We’ll be watching how this story unfolds, within China and throughout the global economy.
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