In our last story on Digital Yuan, we saw the composition of Digital Yuan and some of its disruptive features. In this story we dive deep into some strategic areas of the currency and try to understand how it is positioned to impact the global economy in long run. And of course, this story answers many of the questions surrounding the new digital currency.
Crux of the Matter
How Is Digital Yuan Different From Bitcoin?
- Bitcoin is a decentralized currency which means that it has no controlling authority like a government or a central bank. Digital Yuan on the other hand is the legal tender issued by China’s central bank.
- In bitcoin, the identity of its users is not known. While Digital Yuan with its innate traceability feature overcomes the user anonymity issue.
China will not increase its money supply by introducing new form of currency. With every Yuan introduced digitally in the market, an equivalent worth of physical cash will be drawn out from the circulation thus ensuring the stability of economy.
Will Digital Yuan Disrupt The Global Financial System?
The US Dollar holds 88% share in international foreign-exchange trades. Moreover, at present most of the international settlements happen over the SWIFT technology which is a messaging network used to securely transmit information through a standardized system of codes. The US administration has a significant authority over both the mechanisms.
The Chinese Renminbi holds mere 4% of share in international foreign-exchange trades. Hence, simply with its own digital currency, China cannot replace US Dollar in international transactions. But it will definitely open up new options for people to transfer money and maybe at better margins.
With US being the prime source of dollar, it has the ability to freeze institutions and nations by laying various sanctions on them. Sanctioned nations are kicked out of the global financial system as banks and financial institutions are prohibited from doing transactions with them. This entire phenomena is known as Dollar Weaponization.
- Crippling Economies of Iran and North Korea owing to US laid sanctions.
- Blocking the movement of top military officials financial assets in Myanmar amidst the coup.
- The unending US – China conflict followed by multitude of economic and financial sanctions laid on China.
Aim Of China
One of the prominent aims of Beijing for introducing Yuan is to limit the power of US dollar in international settlements.
Thus, nations that are penalized by US can transact and transfer their money through Digital Yuan – without the knowledge of US.
This takes away sanction leveraging power of the US.Nicholas Burns, American diplomat
It is maybe farfetched to say that Digital Yuan will take over US Dollar. Nevertheless, the building blocks are too important to be ignored.
- The official currency of China is Renminbi. Yuan is the basic unit of the renminbi, but internationally the word is also used to refer to the Chinese currency.
- One yuan is divided into 10 jiao and one jiao is divided into 10 fen.
- The United States dollar is called Meiyuan in Chinese, and the euro is called Ouyuan.