China Digital Yuan vs Bitcoin. The digital yuan meets all… | by Marcel Boer | July 2022

Online credit card payments 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 will have all the criteria to replace the current physical payment methods.

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

• Political-economic: China wants to become independent of the US economy, which dominates international economic exchanges with US dollars.
• Strategic: the launch of the digital yuan should increase competition in electronic payments, whose market is dominated by WeChat Pay and Alibaba.
• Storage problems: Storing and producing coins and currencies is expensive, which explains the need to digitize them.

Unlike most digital currencies, the e-yuan is administered 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 its launch phase, 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 banknotes. 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 distribution.
• Its acceptance by users.

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

In addition to the benefits that a supranational cryptocurrency can provide, the former head of the People’s Bank of China did not fail to mention the risks it may entail. The lack of central bank control of the digital currency can, for example, challenge a state’s national independence. By using an anonymous virtual currency, its national currency can 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 booming in recent years, to name just one, Bitcoin. As a decentralized cryptocurrency, the latter is not administered 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 share as the physical currencies of the world (which are also administered 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 work on digital currency projects.

The decline in cash payments has led them to dig into the topic. So far, Venezuela has taken the step by launching its virtual currency “Petro” in 2018 to meet the financial crisis in the country. Another example is the Bahamas, which also launched the Sand Dollar, a digital central bank currency that makes it clear that it is not a cryptocurrency as such.