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The central bank claims that e-CNY will be a tool for social welfare. Central Bank Digital Currency will be created and run on blockchain technology. China is already a leader in blockchain development and has been experimenting with the technology for multiple uses, including e-governance, supply chain management, and other projects. If you are interested in Digital Yuan, you may join the community of a trusted trading platform like Yuan Pay Group.
China is also exploring an alternative use of digital currency – purchasing power that fluctuates with the market value rather than fiat currency printed by the government, which they believe will be “cost-effective.” As a result, China is also likely to lead the world in implementing CBDCs. But, on hold at the moment while there is a digital currency war between nations that don’t trust paper money.
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Digital Yuan reduces inflationary risks:
China has been facing an economic slowdown since last year. As part of the government’s efforts to counter this slowdown, the People’s Bank of China has increased interest rates five times since October. It has led to a flight of capital from China and has resulted in China’s currency Yuan, depreciating against the U.S. dollar by over 14% since December 2017. But, if the central bank completely rolls out a digital version of the Yuan, it can keep printing the currency and still control inflation, strengthening its grip on power.
Unlimited printing of Yuan will come at a cost:
Currently, the Chinese central bank has to buy foreign currency to meet its daily demand for Yuan. However, it resulted in China spending US$40 billion in 2018, likely increasing as China continues its efforts to curb rising inflation and slow economic growth.
The PBOC also announced that it would give up issuing new money and repurposing some existing amounts to leverage blockchain technology to create e-money. The PBOC prints around $3 trillion yearly, and the government has said they will use more efficient blockchain technology instead of printing new money.
Digital Yuan will reduce corruption:
With less paper money, the government can reduce some of its corruption. It will become harder to steal and mismanage paper money, and the government will benefit from the reduced costs of printing fewer Yuan.
Digital Yuan can help to prevent crime:
With digital currency, it would also become easier to track down criminals trying to launder their ill-gotten gains in China’s underground economy. In 2017, a total of $362 billion was laundered through China, most of which was done through cash couriers.
It is difficult for the central bank to curb this kind of crime because of the large amounts involved and because they do not have enough evidence against criminals. But, a digital currency would enable the central bank to track transactions easily and allow them to crack down on crime.
As a result of having only digital Yuan in circulation, it would be easier for the government to measure how much money is circulating in the economy. It will make it easier for them to figure out if any extra money in circulation does not belong there. It will strengthen their power and help fight corruption within their ranks.
Digital Yuan can give officials more control over the economy:
By placing digital currency in circulation, governments would also get more control over their economies as they would be able to monitor who is spending what and when. It would enable them to allocate money more effectively and maintain a steady supply of money.
Digital Yuan will be more transparent:
The CBDC can provide a transparent system for tracking transactions, providing more significant insights into what is happening with the economy. As a result, it can help to accurately predict economic trends and make it easier for governments to plan their spending more effectively.
It should be noted that while China is planning to move entirely to digital currency, they have not yet decided when to do so. They claim that such a move would take several months as they continue to conduct tests to ensure that digital currency does not cause financial problems.
While China plans to move toward digital money, the world’s biggest economies are still a long way from that. The U.K., for example, has decided to shelve any plans for digital money and will instead focus on blockchain technology for other purposes. The U.K.’s main concern is that blockchain technology may not be suitable for creating an adequate infrastructure that the government can scale up in the future U.S. Federal Reserve has also announced they will not consider issuing digital currency but instead will continue to focus on the security of their existing infrastructure without making any changes.
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