You are here Home » Featured » Can Digital Yuan Provide any Benefits to China’s Economy?

Can Digital Yuan Provide any Benefits to China’s Economy?

by Innov8tiv.com

Photo by Shubham Dhage on Unsplash

A CBDC could provide a viable alternative to credit cards, promote social stability and mitigate financial risk. You can visit Yuan Pay Group platform that have a robust algorithm that performs the research for bitcoin traders and makes trading easy. Also, it has helped many beginners to get started with bitcoin trading. However, there are concerns over the viability of a CBDC due to security and privacy risks that could pose challenges to financial institutions. So let’s explore the potential risks and rewards of China’s decision.

Central Bank Digital Currency (CBDC) is a cryptocurrency issued by the central bank that can be used in domestic circulation, trusted by consumers because people can exchange it for traditional currency or other assets. A CBDC would have similarities to existing cryptocurrencies like Bitcoin and Ethereum but less risk of fraud or theft because it is issued and regulated by a central bank.

The introduction of a CBDC could provide a viable alternative to credit cards. About half of the financial transactions in China are conducted using bank cards, compared to just 15% in the United States.

Some consumers could be turned off by the flexibility and costs of card usage and move towards a single-digit purchase default option like Apple Pay or Alipay instead. It would allow the country’s credit card companies to focus on consumer lending services and act as payment gateways for e-commerce channels. This shift in consumer behaviour could improve the business model for existing credit card companies.

Reducing Fraud

However, reducing fraud and identity theft through a CBDC could have an unintended effect. Consumers would be less likely to share their financial data with significant credit card companies and banks, potentially preventing China from attaining the same level of international micro-payments that Japan and the United States have seen.

Furthermore, if users trust the central bank more than their current financial institutions, they could become less concerned about identity theft or fraud. If a CBDC proves successful, it could exacerbate these risks by removing the need for consumers to trust financial institutions with their data.

A CBDC could be a lucrative target for hackers and cybercrime. For example, hacking into a central bank system is relatively easy because of its centralized design; hackers need to break into the system and steal user information stored on centralized servers (like those from China’s three largest banks).

Financial Stability

A CBDC is also likely to promote social stability by reducing financial risk among consumers, who are already faced with surging social inequality and debt levels due to explosive economic growth. By providing a digital alternative to cash and cards, the central bank would provide more financial tools for consumers and help mitigate the risk of a complete social collapse in China.

A CBDC could also create new financial tools for China’s growing middle class. The success of digital currencies in China has demonstrated the willingness of Chinese consumers to invest in cryptocurrencies. Still, it would not be feasible for everyday use because of fees, government restrictions, and high volatility. A CBDC could overcome these barriers and reduce risks associated with investing in volatile cryptocurrencies like Bitcoin.

Better flow and liquidity of money

Introducing a CBDC could improve the flow and liquidity of money in China. Right now, it is complicated for Chinese citizens to exchange yuan for other currencies because there are limited options. In 2017, foreign exchange rates were dramatically adjusted three times between January and July due to changes from central banks across the globe.

A CBDC could solve this problem by providing a faster payment method than existing systems, such as Alipay or WeChat, which can take about 5 minutes to transfer money to a foreign bank account. In addition, it can provide many financial services on its own, like an electronic payment platform or savings accounts, as well as facilitate payments between central and commercial banks.

Anti-money laundering prospects

Introducing a CBDC could help mitigate money laundering in China, which is already a significant issue for the country. It can be challenging to follow the paper trail of cash transactions from source to destination because of the absence of a centralized platform. If the central bank moves towards issuing its cryptocurrency, this would significantly reduce the risk of end-users being paid in stolen assets or illegal funds.

A digital yuan, however, would only necessarily do some of these things by itself. China’s blockchain industry’s success depends on many factors and regulations that still need to be finalized before we can see an effective and efficient CBDC.

Anti-Corruption Tool

A CBDC could also be an effective anti-corruption tool for China’s central bank. It could enable officials to make transactions outside their usual systems, making them difficult to track. While this may work to the benefit of corrupt officials in the short term, it would eventually expose which corrupt officials are engaging in illicit activity.

A CBDC would also be subject to government regulations on speculation. In addition, it could limit people’s freedom with their money by prohibiting trading in cryptocurrencies or controlling their price movements.

You may also like