Monday, June 1, 2020

China is bringing digital currency, alarm bells for the US dollar

China wants to introduce a digital yuan called e-RMB in 2022. People moving to China in 2022 may have to shop or transact in the new digital currency here.

It will be a currency that cannot be seen, nor will it be held in the hand like other notes. This is not a fantasy. At a time when all countries of the world were struggling with the corona virus infection, China was embarking on a pilot project on the digital yuan currency. Last month, China's central bank, the People's Bank of China, launched work on the project in four major cities: Shenzhen, Chengdu, Sunzhou and Jiangxi.

A portion of the government employees' salaries in the project will be paid in digital yuan.

Twenty different private businesses such as McDonald's and Starbucks have also participated in the project. If successful, the Chinese government will be able to issue the digital currency nationwide by the time of the 2022 Winter Olympics.

However, this will be done in a phased manner and may take a few years. In fact, work on the project began in 2014. China is working very hard to implement it. There are three main reasons for this: the growing trade war with the United States, repeated allegations by the United States and the West about the corona virus, and Facebook's plans to launch a digital currency called Libra this year.

Radical change

The advent of the digital yuan is seen as an event that could change the world's current balance. It is part of China's ambitious project to end US influence and emerge as a powerful country in the 21st century. According to experts, its successful use could lead to the emergence of a new political and economic system in 10-15 years.

Dr. Faisal Ahmed, a China expert at the Fer School of Management in New Delhi, India, says, ‘India and the United States are also developing their own digital currencies, Lakshmi and Digital Dollars, respectively. But so far this is far from the reality. '

US dollar versus digital currency

Now the Chinese 'Dragon' has overtaken the Indian 'Lakshmi'. But experts say it also threatens the dollar, the world's biggest money maker. According to experts, the US Federal Reserve's multi-billion dollar debt is overvalued. A new currency is definitely welcome. But its global acceptance will take a long time.

The digital yuan is a big step towards bridging the gap with the US dollar. The US dollar is currently the world's most widely circulated currency, beginning in the early 1970's with the end of the gold standard. According to experts, the growing anti-globalization environment is becoming a threat to the dollar due to the trade war between the US and China and the Corona epidemic. However, this change will take time as there is no immediate alternative.

The current value of the US dollar can also be gauged from the fact that in 2019, the US dollar accounted for about 90 percent of international monetary transactions. By comparison, the Chinese yuan accounts for only 2 percent of global payments and reserves.

On the other hand, the US dollar accounts for 60 percent of the world's foreign exchange reserves. Interestingly, there are even three trillion dollars in US currency in China's coffers. China can use it in various ways, from which it will grow. According to experts, China could also use the currency to provide incentives to other countries for geopolitical benefits and to invest in countries involved in the Belt and Road project from Central Asia to the Arctic.

Due to the influence of the US dollar and its importance, the United States has been able to maintain its dominance in world political and economic affairs. Its sanctions against Iran, Russia, North Korea and some other countries, for example, have been made possible by international trade and banks' reliance on the US dollar.

The German bank released a report in January stating that the Chinese digital currency could upset the world's balance of power.

The report said, ‘China is working on a digital currency with the help of its central bank, which it can use as a soft or hard power tool. If companies doing business in China are forced to use the digital yuan, it could certainly destroy the dollar's dominance in global financial markets. ' Of course, the digital yuan and similar digital currencies cannot completely eliminate notes. But it can also lead to the end of third parties, such as credit cards.

Facebook's Libra Versus China's Digital Yuan

The mainstream digital currencies now include Facebook's Libra and the Chinese government's digital currency, according to a report by the German national bank Deutsche Bank. Facebook has nearly 2.5 billion users, a third of the world's population. Similarly, China has a population of 1.4 billion. So both Facebook and China have the potential to push digital currency into the mainstream.

But the important difference between other digital currencies and the digital yuan is this
The digital yuan will be issued by the Central Bank of China. Due to which it will be accepted and trust will increase.
However, all other digital currencies are decentralized and do not fall under the purview of any regulatory authority.

According to Noah Hariri, a young Israeli historian and thinker, money is a myth that has significance around the world. Anyone who trusts the dollar and values ​​it. But as America's power in the world dwindles, another power will take its place. Now China is far ahead in that race.


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