DIGITAL YUAN: A PROBLEM FOR USD, BITCOIN AND GOLD?
Of all the choices investors have today to go fully digital with their finances, Bitcoin and gold are no longer the only options. China is making waves with its digital Yuan as Alipay announces it will allow users to trade with the new currency. This partnership evolved from Alipay and Mybank’s participation in China’s digital currency expansion and electronic payment testing. Consequently, this further bolsters the relationship between China and the owners of Alipay, Ant Group. Recently, Ant Group confirmed its involvement in the development of this digital currency with this statement:
“As one of the participants in the trial of the e-CNY, Ant Group’s associate MYbank will steadily advance the trial pursuant to the overall arrangement of the People’s Bank of China. Ant Group, together with MYbank, will also continue to support the research, development and trial of PBOC’s e-CNY.”
But what does the use of a digital Yuan really mean in the grand scheme of the international economy? In essence, this could pose a threat to the US dollar in terms of global trading since a digital token would be much easier to use than paper. Furthermore, this could also threaten Bitcoin and other cryptocurrencies since the digital Yuan would be able to compete even though it lacks anonymity. But does the digital Yuan really stand a chance against the US dollar, Fedcoin, Bitcoin and gold?
WHY A DIGITAL YUAN?
Last month, Chinese e-commerce giant JD.com said it was using digital Yuan to pay staff members’ salaries. The retail firm also became the first to accept the digital Yuan as a payment method. Within its first week of accepting this payment method, it received approximately 20,000 digital Yuan payments.
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But why did China decide to go this route to begin with? Fan Yifei, the deputy governor of the People’s Bank of China, indicated that there is a pressing need to digitize for multiple reasons. Some of these reasons include:
- Expensive production and storage costs
- Difficulty of using cash/coins
- Easy to counterfeit
- Easy to fund criminal activity since there is no paper trail
Additionally, many consumers, especially the younger generation, tend to pay by cards or digitally far more than they pay with cash. Yan Xiao, project lead for the digital trade at the World Economic Forum told CNBC:
