Chinese President Xi Jinping at a press conference after a meeting with the German Chancellor in the Chancellery in Berlin, Germany on July 5, 2017. Shutterstock
The Chinese central bank’s plan to replace their national currency with digital cash has been known for many years but is recently progressing at full speed due to the challenge that Facebook’s Libra brings, The Wall Street Journal reports in a new video.
The new cryptocurrency will be directly issued by the People’s Bank of China and backed by RMB and it looks like China will be the first country that will opt for the cash-free approach.
Even now, approximately 50% of the population in China isn’t using physical money but rather makes their purchases via apps like AliBaba’s Alipay or Tencent’s WeChat through their smartphones. To be precise, 90% of all third party mobile payments are carried through the two apps.
The People’s Bank of China sees no reason why any person or organization would not accept the upcoming cryptocurrency or as the project is also known – Digital Currency Electronic Payments (DCEP).
Martin Chorzempa, Researcher at the Peterson Institute for International Economics, believes that if China does flourish with this revolutionary task, then “a large number of other countries will want to emulate their success”.
Mu Changchun, the head of the bank’s digital currency endeavors already gave a number of speeches on the Chinese digital cash and has been informing the public on cryptocurrencies as a whole for some time now.
He even went further and launched an online course on Facebook’s Libra project through a well-known education app. In it, he expresses his views that Libra is actually threatening sovereign currencies.
Until now, Facebook’s intentions to cater their two billion users with the Libra coin caused a lot of worries in various national banks, including the one in China.
As Chorzempa clarifies:
“They see that Libra could be a way of extending American financial hegemony into the digital currency space as well, say, helping to implement sanctions and export controls.”
Not long ago, China felt threatened by cryptocurrencies like Bitcoin but everything changed after President Xi Jinping called for embracing the role of blockchain, last October. As Chorzempa explained, the Chinese government changed their position and now endorses the use of blockchain because “blockchain is an excellent technology for tracking”.
Although Chinese officials state that the digital yuán would not confront Alipay and WeChat they will have a couple of competing features – both will need a digital wallet, but the digital currency will not need a bank account and the wallet will be issued by the central bank. Payments with the central bank’s cryptocurrency will require no internet connection which is truly remarkable.
Although the Chinese digital cash is promoted as totally anonymous, a patent filed by their central bank in 2017 shows a research effort towards tracking the crypto.
“One of the most interesting aspects of the system is how much data will the central bank have about where we go because that’s one of the largest, most important differences between digital currency and cash,” said Chorzempa.
Of course, officials back up their intentions with the battle against tax evasion, money laundering and terrorism financing.
The desire for digital state-backed currency is interesting in many countries but it looks like China is still leading the race which would eventually lessen their dependency on the US dollar.