China syndromeChina Leads in Race for Digital Currency
China’s central bank has made steady advances in its goal of launching the world’s first major sovereign digital currency. By becoming the first world power to dominate the digital sphere, China could potentially carve out a stronger position for itself in the global economy and make it less vulnerable to sanctions from Washington, another step in Beijing challenging the US for global dominance. Moreover, the Chinese state could theoretically abuse its digital yuan not only to track transactions of its own citizens, but also any companies or countries that would use the digital yuan.
Imagine going to the bank to take out cash, except without going to the bank and without the cash. If the Chinese central bank’s plan for a digital yuan succeeds, the future could look something like that for everyone.
Since early this year, China has gradually ratcheted up testing of its first central bank-backed digital currency, known there as DCEP, or “digital currency electronic payment.”
While other countries have made similar attempts to launch a digital sovereign currency, moves by the world’s second-largest economy hold a higher level of significance.
“In the future, everyone will be using DCEP,” Chinese bitcoin pioneer and millionaire Chandler Guo told the BBC in August.
While rumors have swirled that DCEP could be rolled out to the public as early as this year, the People’s Bank of China (PBOC) aims to have the currency in use in time for the next Winter Olympics, planned for February 2022 in Beijing.
If the project succeeds, a digital yuan could eliminate the need for both physical cash and online payment services like PayPal, and be another way for China to challenge the US for global dominance.
No More Wallet
DCEP is a digital currency backed by the yuan. Unlike bitcoin and other cryptocurrencies, whose values can vary wildly based on speculation — making them, in the eyes of most governments, unsuitable for widespread use — DCEP will be as stable as the physical yuan.
Like cash, each digital yuan is created, signed and issued by PBOC, China’s central bank. Unlike cash, however, the bank retains the ability to track the movement of every piece of digital currency it issues.
Commercial banks distribute DCEP to their customers, who can download the currency from their bank accounts into digital wallets or apps, akin to taking cash out at an ATM.
With a digital wallet flush with DCEPs, consumers can make contactless, instant payments to anyone else who uses the service, whether at the grocery store or paying back a friend. This could theoretically eliminate the need for third-party digital payment services like WeChat or Alipay, currently very widely used in China.
