China’s Digital Yuan vs Bitcoin. The digital yuan fulfills all the… | by Marcel Boer | Jul, 2022

Online payments by credit card have become commonplace. Cryptocurrency payments are also becoming more common, especially in certain regions of the world, such as El Salvador, which has made Bitcoin an official currency… or China, which is testing its own cryptocurrency! The digital yuan or e-yuan would have all the criteria to replace the current physical payment methods.

The digital yuan is a cryptocurrency launched in 2015 following the initiative of the Chinese government. The e-yuan was created for several reasons:

• Political-economic: China wants to become independent from the American economy which dominates international economic exchanges with the US dollar.
• Strategic: the launch of the digital yuan should increase competition in electronic payments, whose market is dominated by WeChat Pay and Alibaba.
• Storage concerns: the storage and production of coins and currency is expensive, which explains the need to digitize them.

Unlike most digital currencies, the e-yuan is managed by the Central Bank of China. This explains the “paradox” (at first glance) with China’s ban on Bitcoin.

Although the digital yuan is still in the launch phase, its success is more or less assured, both with Chinese citizens and with the former president of the Bank of China, Li Hui. A digital currency that, according to the latter, will be able to take the place of money bills. However, the use of Chinese cryptocurrency as a real means of payment will depend on several parameters:

• Its efficiency.
• Its transaction costs.
• Its large-scale deployment.
• Its acceptance by users.

But the digital yuan does not intend to remain confined to China alone, but rather to be exported internationally to supply global trade.

In addition to the benefits that a supranational cryptocurrency can bring, the former head of the People’s Bank of China did not fail to mention the risks that it can bring. The lack of central bank management of the digital currency, for one, can challenge a state’s national independence. By adopting an anonymous virtual currency, its national currency could be completely forgotten. With the success of cryptocurrencies, commercial banks will face tough competition, especially in payment, financing and savings services.

Virtual currencies have been on a roll in recent years, to name just one, Bitcoin. As a decentralized cryptocurrency, the latter is not managed by a central bank. On the other hand, the digital yuan works differently from other cryptocurrencies. In fact, it will be issued by the Chinese central bank in the same stock as the physical currencies in the world (which are also managed by their central bank).

While China is testing the digital yuan in some cities and regions (Shanghai Financial Center, Hainan Province, Changsha, Xi’an, Qingdao and Dalian), other countries are only now studying their digital currencies. Since the Covid-19 pandemic, 86% of central banks are reportedly working on digital currency projects.

The decline in cash payments has prompted them to dig into the subject. For now, Venezuela has taken the plunge by launching its virtual currency “Petro” in 2018 to address the financial crisis in the country. Another example is the Bahamas, which also launched the Sand Dollar, a digital central bank currency that clarifies it is not a cryptocurrency as such.