The digital yuan and its risks

China is working hard on its digital currency. Against this backdrop, Western central banks such as the Federal Reserve, the Bank of England and, [...] https://www.pinterest.com/pin/1085437947660215829/

China is working hard on its digital currency. Against this backdrop, Western central banks such as the Federal Reserve, the Bank of England and, to a lesser extent, the European Central Bank pale in comparison. However, the e-juan provokes questions about global financial stability. Digital yuan The digital yuan already has legal tender status. Payments using it are essentially no different from those made on payment platforms such as Alipay or WeChat. At least looking at it from the consumer's perspective. This is because E-juan bypasses commercial banks. The central bank stands behind it. In contrast, unlike cryptocurrencies such as Bitcoin, central bank digital currency (CBDC) is backed by the government. Admittedly, questions about surveillance of citizens are most often raised in this context. However, it is worth considering whether CBDCs will change the global monetary system and order. The digital yuan and the dangers There are several dangers in this field. The first concerns international payments. Most cross-border transactions now rely on the US dollar as a kind of intermediary. This in turn entails the need to use the SWIFT banking protocol. This means (again!) a significant demand for the US dollar, which benefits the US. Transactions using the digital yuan will not require SWIFT or dollars, which has implications for the use of dollars in international trade. This could also strengthen China's position. The second danger is that if central banks don't meet the demand for digital money, market forces will. Especially when you add in the ideas that digital yuan should have an expiration date. That's a threat from the perspective of those in power. For cryptocurrencies - a great opportunity. Third, countries that don't adopt digital currencies may fear that their central banks will lose control of monetary policy to cryptocurrencies - whether decentralized initiatives like Bitcoin or centralized ones like Facebook's planned Diem currency. Economic warfare The digital yuan will likely be another element of tension between China and the United States and Europe. The reason? It's not just about dealing a blow to the dollar. The e-juan will also allow it to bypass sanctions, such as those recently imposed on Chinese officials over human rights concerns. The U.S. will become helpless on this front. Given what's at stake, however, it's likely that the U.S., EU and U.K. will accelerate the creation and testing of their own digital currencies. Blockchain is changing the way we make payments, and the risks of being left behind are too great to ignore. Tags cbdc China digital yuan economy payments US