By: Aaron Giri & Annette Schiller
Since its inception in January 2009, and its massive rumble in 2020, Bitcoin has reinvented what digital currency means in the modern-day. It seems that over the past year Bitcoin has only seen an upward progression, and with America being the largest trader of bitcoin, (Li, 2021) this proves to be a threat to other countries. China has taken the most interesting approach to adopting its digital currency. The country was an early adopter of bitcoin and opened its first bitcoin exchange in 2011 (Li, 2021). It wasn’t till 2012 however, that China began to see the potential of American digital currency, and how threatening it was for their economy and political ideals. Now over the past year, China has rapidly begun to replace bitcoin with the Digital Yuan. One question stands however, is Xi Jinping ‘enforcing the digital Yuan simply as an alternative from American cryptocurrency, or is it a ploy to keep control over their citizens?’
The recent infatuation with cryptocurrencies lies in the fact that it is decentralized. The Digital Yuan however would instill a centralized currency, which in a way would defeat the major benefit of cryptocurrency (Digital Yuan, 2021). The main distinction between digital currencies like that of China, and other cryptocurrencies such as Bitcoin, is the difference in their use of blockchain technology. Bitcoin uses blockchains to remain anonymous between users and takes advantage of the decentralized technology it offers. However, digital currencies like the Digital Yuan use blockchain technology but operate off a centralized authority, in this case, the People’s Bank of China, and require user identification (Freidin, 2021) . China aims to not only prevent the use of American digital currency in China, but also push their centralized cryptocurrency globally. This may prove to be difficult however since Victor Shih, a professor at the University of California San Diego, and an expert of China’s political economy stated last year that, “nearly two-thirds of the world’s currency reserves are held in US dollars, compared with 2% in yuan” (Li, 2021). Digital Yuan is still making noise however. Despite it only being in its beta stages, as of June of 2021, transaction volume has surpassed 34.5 billion yuan (Li, 2021).
China is pushing for a digital currency for various reasons. Creating and storing cash and coins is expensive. Furthermore, it is easy to counterfeit and its factor of anonymity allows for it to be used in illicit transactions and circumstances. The implementation of a digital currency would help in reducing the issues above and in allowing for a more efficient currency to be put in place. The digital yuan would provide government backing, making it more secure, and would bypass the need for banks and other financial services which charge fees, allowing for a cheaper form of currency exchange in the eyes of the users. The Central Bank Digital Currency (CBDC), what China’s new digital currency is referred to as, allows for easier transmission of monetary policy due to the higher degree of control that the government has over it (Kharpal, 2021). Finally, it also allows for a greater ability to monitor and track the usage of digital currencies. The CBDC can be used to move people away from utilizing other digital currencies and bitcoin alternatives, which in turn means that China can keep more information onshore. As China’s current government places a large emphasis on control, their move towards a Digital Yuan is completely understandable.
In a world that is constantly being shaped by new technology, China’s shift towards a Digital Yuan is not at all surprising. The Digital Yuan holds much promise for the future of China and its economy and will undeniably change the way we think about our money forever.