China already has the world’s highest mobile payment access rate, with 790 million users anticipated this year. In 2018, Chinese customers made over 60.5 billion mobile payment transactions, paying 277.4 trillion yuan (US$39 trillion). But government-backed digital money would be a game changer. Beijing has already started testing its digital currency (DCEP). Some experts say if it works, it may change the global financial system.
In addition to shopping, the trials will encompass transportation and wage payment. Pilot projects are underway in Shenzhen, Chengdu, Suzhou, and Xiong’an. It was used to reimburse up to 50% of government employees’ travel expenditures in May. It includes China’s four main national banks, three significant telecoms businesses, and American corporations like McDonald’s, Subway, and Starbucks. The trial’s second phase is scheduled for the 2022 Winter Olympics in Beijing.
It is Not Just An Ordinary Digital Wallet
Last year, 80% of payments in China were done by mobile. Social media images of the digital yuan app look a lot like these digital wallets. But the DCEP is more than a digital wallet or a payment system. It is a digital version of fiat money, or government-backed cash. Of course, digital money is nothing new and the rise of the crypto industry has raised worries about money laundering.
Experts say virtual currency might help combat “dirty money” – as Chinese authorities discovered during the COVID-19 epidemic. During the epidemic, Hubei province, notably Wuhan, gathered and sanitized billions of yuan in currency. Some of the cash had to be thrown out to prevent virus transmission through banknotes and coins. Yet such situation can be prevented if digital currency would be used.
Another benefit for non-Chinese users is that the system does not need an e-wallet or a Chinese bank account. A digital currency might benefit China’s ambitious plan to integrate economic and infrastructure projects in over 60 nations. Joining the yuan pay group can be a good idea especially to those who can hardly access the banks. People may be interested in adopting a digital currency like this to govern their economic connection with China. They won’t lose money on foreign exchange and transactions will be substantially cheaper.
The yuan pay group may become more global, but analysts disagree on whether it can threaten the dollar’s domination. Mr Jasper Lee of eToro thinks the digital yuan might someday be used in global markets and as a wealth store. This, he argued, might ultimately threaten the dollar’s supremacy. Yet, the journey is never that easy. The longer term pressure to shift more towards these state-backed digital currencies, whether China’s or a few of others produced over the next several years, is apparent.
The future of China’s digital currency may be linked to China’s evolving prominence on the world scene.
This is because the renminbi is not recognized as a legitimate global currency. So, basically it is the nation’s financial and currency position that will drive this currency’s worldwide adoption and use. Once people have started embracing the digital yuan, then that would be the time that threats will start to rise.