As we entered the era of digitalization and cryptocurrencies slowly rose into prominence, the race towards digital money started, and it looks like China is ahead of the game. In October 2020, it started to run tests on its digital currency, carrying out a lottery with a total of 10 million yuan (approximately 1.5 million US dollars) in the game. Lucky winners had to download a Renminbi app, where they could cash in their wins, and use them in one of 3,000 designated places in one of Shenzhen’s districts, where the lottery took place.
China’s attempt to bypass the dollar-powered regulations
In February, China took one step more towards a digital currency, as it set up a deal with Society for Worldwide Interbank Financial Telecommunication, (SWIFT), which processes international payments, regulating the global flow of money. Why is it so important? In the system set up by SWIFT, the dollar is the leading currency, and thus grants the US influence over global transactions. Digital Yuan could be transferred without SWIFT, and therefore, it could potentially undermine the position of the dollar and reduce the importance of US sanctions, changing the dynamics of the world’s financial scene.
Digital Yuan to come with an expiration date to encourage greater consumption in times of economic downturns
Interestingly, the Chinese Yuan is likely not only to disturb the state of global finances but also to change the Chinese economy from within. The latest reports suggest that China might introduce the digital Yuan with an expiration date to control the way people spend money and stimulate the Chinese economy when necessary. An expiration date would discourage people from hoarding money, and therefore, force them to spend more, especially in times of economic downturn, when people naturally economize more. At the same time, the Chinese government would be able to surveil and control most financial transactions in the country, and therefore, completely control the flow of money in China.
Given that the introduction of the digital Yuan is meant to strengthen the position of the Chinese currency and weaken the dollar’s influence over the global economy, the upcoming months will be interesting for the global financial world. Reports suggest China's National Digital Currency might debut during the upcoming 2022 Winter Olympics in Beijing, so in the upcoming months we will likely find out if the country’s future digital currency will come with an expiration date.
Sources:
- https://www.forbes.com/sites/enriquedans/2021/04/07/chinas-digital-currency-is-about-to-disrupt-money/?sh=1f1552781665
- https://www.forexlive.com/Cryptocurrency/!/china-is-testing-its-digital-yuan-may-come-with-a-use-by-date-20210406
- https://www.wsj.com/articles/china-creates-its-own-digital-currency-a-first-for-major-economy-11617634118
- https://www.cnbc.com/2020/10/12/china-digital-currency-trial-over-1-million-handed-out-in-lottery.html
