While the development of a state-back digital currency is taking place in multiple countries across the world, China has made it clear that it is looking to dominate the sector before anyone else.
According to a recent report by Reuters, the People’s Bank of China is emphasizing on the importance of being the first-mover in the centrally-back digital currency race, as it would push towards the internationalization of the yuan. Published as a commentary on a PBOC controlled magazine, it was indicated that a digital yuan would reduce the dependency on the global dollar payment system. Additionally, the magazine indicated the creation of a ‘new battlefield’ between sovereign countries to issue and control a digital currency.
The article read,
“China has many advantages and opportunities in issuing fiat digital currencies, so it should accelerate the pace to seize the first track.”
Moreover, in the post-pandemic era, it was stated that a digital yuan would lead to improved data collection and improve monetary policies. Since the COVID-19 outbreak, the world economy has been dealing poorly and new digital payment systems will allow Yuan to break the global monopoly on the dollar.
The rise of CBDC doesn’t necessarily mean the rise of crypto-assets
What most people will miss from the report is the fact that a digital yuan will not idolize any ethos related to a crypto-asset. The digital yuan will be backed by the People Bank of China, which cuts down the decentralized background and it has been speculated that a blockchain might not be used either.
Mu Changchun, a PBOC bank official, had recently suggested that the payment demands of China are drastically high, which existing blockchain technology of other assets might not be able to support.
While trying to attain a balance between user privacy and catching cybercriminals, Mu insisted that the PBOC would not be completely exposed to user information but user identities are likely to be tied to individual wallets.
East-Asia/China market crypto volumes to decline?
As mentioned in an earlier article, the East-Asian market incurs the highest crypto volumes of all-region. With the launch of a digital yuan, the transaction density might go down but it is too early to say. Digital Yuan is still a few months away from being public to everyone in the country and till then digital asset volumes are likely to stay high.
With time, however, Bitcoin might lose further traction in these markets as the majority was already moving towards Stablecoins and Altcoins trading. Bitcoin’s decentralized did not sit well with the Chinese government, and the development of a digital yuan is living proof that is hardly going to change in the future.