China’s Digital Currency is a Challenge for the US Dollar
Place: Beijing. Occasion: Winter Olympics. Year: 2022
China wants to bring a digital Yuan currency in 2022 called e-RMB.
People going to the Chinese in 2022 may have to buy or transact in this new digital currency itself.
It will be such a currency that will not be seen, nor will you be able to take it like a note.
This is not a fantasy.
At a time when every country in the world is struggling with the spread of corona virus, China was engaged in launching a pilot project on Digital Yuan.
Last month, China’s central bank, the People’s Bank of China, started working on it in four major cities – Shenzhen, Chengdu, Suzhou and Xiong’an.
In this project, some part of the salary of government employees will be given in digital Yuan.
In addition, about 20 private businesses, such as Starbucks and McDonald’s, have also participated in the experiment.
If it succeeds, the Chinese government will release it to the entire country at the time of the Winter Olympics in 2022.
However, this will be done in a phased manner and may take several years.
Work on this project began in 2014. China is showing great speed in implementing it.
There can be three main reasons for this: the increasing trade war with America, the US and Western countries constantly accusing China of Corona virus and preparing to bring Facebook’s digital currency Libra this year.
Tectonic Shift
The introduction of digital Yuan is considered to be one thing that can change the global balance. It is a part of China’s ambitious projects aimed at ending the US influence and emerging as a powerful country in the 21st century.
Experts say that a new political and economic system can be born in 10-15 years with its successful use.
“India and the United States are also working on their own digital currencies named” Lakshmi “and” Digital Dollar “respectively, says Dr Faisal Ahmad, a China expert at Delhi-based Four School of Management. But, so far they are far from reality . “
US Dollar vs Digital Currencies
Currently, the Chinese dragon has left the Indian Lakshmi far behind.
But according to experts, the money king of the currency world is also in danger.
Alok Churiwala of Mumbai-based Churiwala Securities says, “Looking at the US dollar debt of the US Federal Reserve, the dollar is significantly more expensive than its original value (over-valued). A new currency is definitely welcome but in its global acceptance take a long time.”
Praveen is the portfolio manager of Exclusive Singapore-based Modular Asset Management and deals with currencies around the world.
He says, “The digital Yuan is definitely a big step towards distance from the US dollar. Currently the US dollar is the prevalent currency in the world and has been so since the end of the Gold Standard in the early 1970s.”
He adds, “Increased disenfranchisement is a threat to the dollar due to the US-China trade war and now the corona epidemic controversy. However, this change will take time due to the lack of any other immediate option. Have to take care of the steps. “
Currently, the importance of the US dollar can be gauged from the fact that in 2019, about 90 percent of international monetary transactions were traded in US dollars.
In comparison, the Chinese Yuan accounted for only 2 percent of global payments and reserves.
On the other hand, more than 60 percent of the entire world’s reserve is in US dollars.
India’s foreign exchange reserves of 487 billion dollars are also in US dollars.
Dr. Faisal Ahmed believes that China can use it in many ways which will increase its credibility.
He says “China can use this currency to provide incentive packages to other countries for geopolitical benefits and to invest in countries involved in the Belt and Road (BRI) project from Central Asia to the Arctic region.”
Currently, the impact of the US dollar and its importance means that America will continue to dominate the political and economic issues of the world.
For example, sanctions against Iran, Russia, North Korea and other countries are possible due to international trade and banks’ dependence on US dollars.
Deutsche Bank released a special report on digital currencies in late January this year suggesting that the Chinese digital Yuan may reverse the global power balance.
The report said, “China is working on a digital currency with the help of its central bank that can be used as a soft or hard-power tool. In fact, if companies trading in China are allowed to buy digital Yuan If forced to adopt, it can certainly destroy the primacy of the dollar in the global financial market. “
The report states, “The way the US promoted the dollar in the early twentieth century, the Chinese government is now making a great effort to internationalize the Renminbi RMB (China’s official currency whose unit is the Yuan). From 2000 to 2015, RMB’s share in China’s trade transactions increased from zero to 25 percent. “
Deutsche Bank suggested that digital Yuan and similar digital currencies cannot eliminate cash but could lead to the end of third parties such as credit cards.
Praveen Special says, “Unlike other methods of payment, it can be used for payment without an internet connection. It’s like real cash but in a digital world.”
He further adds, “The success of the digital Yuan will depend on how fast it is being adopted by ordinary people, retailers, corporations, governments and other countries.”
But in addition to Facebook’s Libra and digital Yuan in currencies emerging as a force in the virtual world, many virtual currencies exist and many are in the works.
Bitcoin is already present in the market and its popularity is increasing.
India has banned crypto currencies but the Reserve Bank is seriously thinking about the digital currency Lakshmi.
Facebook Libra vs Digital Yuan
The Deutsche Bank report states, “The mainstream digital currencies at the moment are Facebook’s Libra and the Chinese government’s digital Yuan. Facebook has approximately 2.5 billion users, one-third of the world’s population. From China’s 1.4 billion with a large population, Facebook and China have the ability to move digital currencies into the mainstream. “
But the important difference between other digital currencies and the digital Yuan is that China’s central bank will issue the digital Yuan, which will give it acceptance and increase its trust.
All other digital currencies are decentralized and do not fall under any regulatory authority.
Dr. Faisal Ahmad says “The digital Yuan is a state-backed currency unlike other currencies such as the Libra. It will also have political ramifications. For example, the use of the digital Yuan will help countries like North Korea avoid US sanctions.”
India’s digital currency Lakshmi was born in 2014. The idea of digital Yuan was also born in China in the same year.
But for the launch of Lakshmi of India, first we have to wait for the report of several committees formed on this issue.
One expert said, “India is promoting digital wallet while China is about to launch digital currency.”
Praveen Special says, “The digital Yuan should not be seen as a threat, but rather as a revolution in digital networks. India has also introduced AEPS (Aadhaar Enabled Payment System) and UPI (Unified Payment System) locally. But the use has led to the digital revolution. “
Advantages and Disadvantages of Digital Currencies
The benefits are that it cannot be duplicated, transactions can be instant, international transactions will be inexpensive, all people will be able to use them and help them through hawala, smuggling and helping extremist activities. Will be closed
And the disadvantage is that people will not have confidence in it soon, it will not have access to the poorest sections of the population and it will depend on digital wallet.
Experts say, as the technology will develop, the benefits of digital currency will also increase.
Alok Churiwala says “It takes a long time to build people’s trust in any system. The US dollar has existed since 1770. Its popularity started growing from the time of the First World War and it became the world’s best currency till the second world war. . “
Israel historian and thinker Yuval Noah Hariri says that currency is a myth which has worldwide importance.
Everyone trusts the dollar and everyone values it.
But if there is a decrease in America’s world, then some other power will take its place. China seems quite ahead in that race.
