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“China’s CBDC Entails Chances Of Preventing Dollarization,” Former PBoC Governor

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Central Bank Digital Currencies [CBDC] have found its way into the world. With digitalization as a primary goal, governments have been carrying out the development of these assets in full swing. With China’s digital yuan being ready to be out and about, an executive of the Asian central bank revealed several other insights into the digital yuan.

Challenging The Dollar

The supremacy and monopoly that the American dollar has gained over the decades has caused an uproar in the financial sector. Numerous countries striving to bring down America’s hold on the global financial scene, no one has managed to disrupt the country’s supremacy. However, the former governor of China’s central bank, the People’s Bank of China [PBoC], recently proposed that the digital yuan entailed the chances of dethroning the dollar.

Appearing in a recent Eurasia Forum conference, Zhou Xiaochuan pointed out that China had the ability to hinder the dollarization of the economy as it has been addressing and focusing on other topics as opposed to the G7.

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While the G7 aka Group of Seven includes, Germany, Italy, Japan, Canada, UK, France as well as the US, directed their attention at Facebook’s Libra project and other crypto-related issues, China was formulating ways to limit the use of the US dollar as the most common means of exchange.

He further added,

“In China, we’ve been working very hard to push the DCEP that’s the digital currency and the electronic payment. However, the focus and the major point of our concept and the content are different from the G7 principle. We need to prevent dollarization. This is one of the major designing points of the Chinese DCEP.”

Xiaochuan stressed the fact that Asian countries had been working on making the digital yuan suitable for retail payments.

While the launch of Facebook’s crypto project is almost uncertain, China has made itself clear multiple times that it was going to soon release its CBDC, the digital yuan. More recently, the country engaged its citizens in a public giveaway in the city of Shenzen where the population was allowed to make use of the digital yuan for payment purposes. A new law accomodating CBDCs was also in works in the country.

Chinese Blockchain Industry Flourishing Despite the Economic Impact of Covid-19 with Over 10,000 New Firms Registered in 2020

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The Chinese blockchain industry is still flourishing, given the economic impact of the coronavirus pandemic. The Chinese authorities have licensed more than 10,000 new blockchain firms so far in 2020, according to blockchain analytics firm LongHash. Most of these businesses have business assets worth as little as 5,000 yuan.

Notably, with about half of the year remaining, the number of new registrations in China this year is the third-highest, only eclipsed by the previous two years. China saw its highest number of new blockchain firms set up back in 2018, hitting the same highs again in 2019. However, given the current rate of growth in the Chinese blockchain sector, the number of new registrations will exceed the year before, as per the analytics firm.

Blockchain firms closing down in China

There are currently a total of 84,410 registered blockchain firms in china. Out of this massive figure, only 29,340 firms are operational. Most of these new firms are based in the Chinese province of Guangdong, followed by the southwestern province of Yunnan.

Notably, most of these blockchain startups were established using small capitals as per the analytics firm. The majority of these blockchain startups were registered with only 5,000 yuan (about $719). Nevertheless, a small number of startups have a registered operating capital of more than 50,000 yuan ($7,175).

Chinese blockchain industry growing despite China banning crypto trading

Even though the Chinese authorities prohibited crypto trading and ICOs three years ago, the Chinese blockchain industry is still accelerating. The industry is instead growing substantially. Indeed, early this year, the Chinese congress reviewed a national blockchain fund bill that aims to promote innovation in the sector.

Furthermore, China has a total of 224 recognized blockchain projects which involve technology behemoths such as Walmart and Baidu. Interestingly, the PBoC is also on the verge of issuing digital yuan, while also participating in a variety of other blockchain-related projects.

China’s Digital Currency Project Lessons to the Entire World

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China’s digital currency may not conquer the present financial ecosystem which has already been controlled by the United States dollar, however, the central bank digital currency (CBDC) project is a good foundation for world economies to build on.

Back in March, the Peoples Bank poof China (PBoC) launched the testing phase for its state-issued digital currency. The test, which is stipulated to be conducted in the Chinese cities of  Suzhou, Shenzhen, Xiong’an, and Chengdu and will entail the transfer of remuneration to state employees in the embodiment of the new CBDC.

China’s digital currency to derange the contemporary financial order?

The PBoC is planning for the central bank digital currency to be ready for use before the 2023 Olympics which will be held in an Asian country, takes place. China’s decision to develop a digital currency created waves among the policy community. Back on April 20, China commenced on the first testing stage of the CBDC. Following the launch of China’s digital currency, a report by the state media outlet, China Daily, stated that:

“A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level”.

Despite the increased fuss on China’s digital currency threatening the contemporary financial system, there are several reasons to hesitate on this quickness and extent of this rather long declaration.  Firstly, as illustrated by Kenneth Rogoff, a professor of economics at Havard, the present dollar dominion is backed by “America’s deep and liquid markets, its strong institutions, and the rule of law”.

The professor’s observation becomes evident in the September 2019 Bank of International Settlements (BIS) study. As per the survey, the United States dollar holds onto its supreme currency reputation, being on one side of 88 percent of the entire trades, the SWIFT banking network, and as the report points out, dominating the worlds’ bank-to-bank money transfers,

The Chinese renminbi is the eighth most traded currency

Chinese renminbi, which is popular as yuan, is the eighth most traded currency in the world. Basically, the reason behind this is highlighted by Professor Rogoff who states that:  “China’s burdensome capital controls, its limits on foreign holdings of bonds and equities, and the general opaqueness of its financial system leave the Yuan many decades away from supplanting the dollar in the legal global economy.”

All in all, the subject of China’s digital currency begs for additional probe and given it will not depose the current financial order should not restrain us from questioning the inherent value proposition of a cryptocurrency. Back in 2019, ex-PBoC digital currency head, Yao Qian, made a captivating case for CBDCs. His observations should hold great weight to countries seeking to create a central bank digital currency.

China Goes Full Steam Ahead with Digital Yuan Mobile Application

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China has become one of the foremost leaders when it comes to the blockchain and cryptocurrency industry with other regions considering it a major competition. Ever since Chinese premier Xi Jinping claimed that blockchain technology was beneficial, the country has not looked back.

The latest reports revealed that China’s central bank was planning to launch a native mobile application that will enable users to store and exchange the much-anticipated ‘digital yuan’. The bank confirmed plans about the application after multiple screenshots circulated on social media about the UX and UI of the application.

According to the central bank, the application was currently going through rigorous testing with the aim of developing a full-fledged product later. The bank is expected to launch beta tests in major cities such as Shenzhen, Suzhou, Xiong’An and Chengdu. An official release from the bank confirmed the four regions after a long spell where the bank kept its internal workings secret. The People’s Bank of China made its statements to allay any rumours generated from circulating screenshots.

An official statement from the PBoC said:

“The rumoured information about the DECP on the internet is part of the test in our research and development process and it does not mean the digital yuan has been launched officially. The current closed testing of digital RMB will not affect the commercial operation of listed institutions, nor will it affect the RMB issuance and circulation system, financial market and social economy beyond the testing environment.”

Sources close to the developments have said that the pilot projects will not affect the developments of other native projects within the designated areas. The dates for the tests or the actual launch have not been confirmed by the PBoC yet but there are chances it might occur during the Winter Olympics of 2022. China has reiterated that the blockchain tests will not have any impact on mainstream markets either.

Right now, people close to the PBoC have said that the digital RMB system has basically completed the top-level design and standards under the premise of double later operation. In order to continuously optimize and improve functions, the bank will be conducting routine checks internally. The PBoC will also test the waters in terms of circulation, controllable anonymity formulates and function research and development.

The hype around the tests had first started last week when screenshots of a mobile application developed by the Agricultural Bank of China started doing the rounds on WeChat. This triggered massive interest from enthusiasts who predicted that the move could be the started point for blockchain acceleration and development. China has been slowly getting into the big picture of blockchain since 2014. By the end of 2017, the Chinese State Council and the PBoC started working in tandem to establish the Chinese digital Renminbi.

People’s Bank of China (PBoC) Almost Complete Sovereign Digital Currency

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Amidst the COVID-19 adverse effect across China and the world at large, there seem no setbacks in the development of China’s digital yuan.

As per the report shared by a Global Times on Tuesday, the People’s Bank of China (PBoC) is way closer to issuing digital yuan. The report was cited with the “industry insiders”, adding to that the central bank is also drafting relevant laws to roll out its national digital currency.

The news comes in a wake of China’s anti-crypto, elaborating three types of scams happening across crypto exchanges. In addition to this, the bank had also noted the crowning cryptocurrency, Bitcoin is not a safe haven and it is too volatile.
On the other side, the recent report also noted that the country’s leading payment platform, Alipay’s patent shows several functions required to circulate, issue or proceed payment for digital currency. The industry insider told the Global Times as follows;

“Judging from the patents, the first step of technological development has been basically completed,”

However, the People’s Bank of China (PBoC) early this year acknowledged that the top leave design of the sovereign digital currency has been completed. However, he quietly noted that the currency is progressing smoothly.

With the coronavirus epidemic continued, people rarely care about fiat or paper money that may likely act as a reason for more COVID-19 cases. That being said, Bitcoin and other digital currencies have been considered as a feasible solution. On the same stance, Industry Insider suggested that the country should move forward of launching this digital currency in ongoing COVID-19 crises which have also affected the financial system.

Nonetheless, Cao Yan, managing director of Digital Renaissance Foundation, stated that;

“If there is a chance China is considering lowering its interest rate into negative territory as a final option and directing such policy to commercial loans and lending, a circulated digital currency rather than M0 will be able to achieve that,”