CBDC is the most direct way to implement negative interest rates. Academic research has demonstrated that economic activity increases if a central bank charges a negative interest rate on deposits because people will save less and spend more. If you want to trade Digital Yuan, go to Altcoin SideKick for the best trading experience.
Similarly, economists estimate that charging negative interest rates on all commercial bank loans could spur gross domestic investment and lead to more significant economic growth. With this kind of power, on the one hand, China’s government becomes better equipped with tools to control and regulate its economy.
China has already started to implement significant measures that heavily influence the economy. For example, people announced that the nation is starting to implement a national electronic payment system similar to Japan’s “e-Money Issuing System” to reduce the number of cash transactions. This new system is also anticipated to become a leading digital currency globally as other countries look forward to joining it.
China’s digital Yuan can dominate dollar report says:
The recent rumours suggest Chinese authorities are creating a digital asset that would eventually replace the U.S. dollar in the years ahead for international trade and payments. A senior official told a private meeting recently: “Discussions about the digital currency have been going on for more than a year. The central bank has already established some desks to study the issue. It has research teams dedicated to the task.”
It is not the first attempt of China to launch a Central Bank Digital Currency (CBDC). The last attempt was made by the People’s Bank of China in 2014 when they experimented with their prototype. However, as this prototype failed, the Chinese government passed it over and implemented CBDC.
Why does the digital Yuan have the potential to dominate the dollar?
Digital Yuan is more liquid:
During the trade settlement, Yuan is usually moved in and out of China several times before converting it into dollars. This process can take days, even weeks and requires numerous intermediaries. If a CBDC is implemented, people can settle all transactions in minutes. Transactions would be recorded on the ledger through the use of blockchain technology.
It will allow all parties to track transactions on their computers and smartphones, even if they don’t directly hold accounts with the central bank or commercial banks. It will also enhance transparency, as every transaction can be publicly available for any local or foreign government to see.
Digital Yuan is way more transparent than the dollar:
As opposed to the double-entry accounting system used by banks, blockchain technology is based on a single-entry system, which enables regulators and the public to monitor transactions in real time.
These two systems allow for more efficient and transparent cross-border payments and will create a new benchmark for global treasury management. Moreover, the transparency of the digital Yuan will eventually force central banks to adopt a similar system.
How the digital Yuan will be structured is still being determined, as is how China and its foreign trading partners will manage the transition from the existing system to a new settlement mechanism. The People’s Bank of China is considering issuing digital currency directly to financial institution customers instead of individual consumers. This way, one digital currency can be shared by Mainland China and Hong Kong in the future, making it easier for Standard Chartered and HSBC to introduce their businesses in Mainland China.
Digital Yuan is safe than the dollar:
As electronic cash, the digital Yuan will make it easier for China’s central bank to track down money laundering activities. One of the main challenges central banks face today is that they need complete control over the money supply in the market. Digital Yuan is more private than the dollar:
As a digital currency, there is little risk of theft. However, a digital system would enable the government to reach every user and enable real-time surveillance and auditing. It may not appeal to users who want ultimate privacy, but it will make it harder for criminals to hide.
What impact would the digital Yuan have on the U.S. dollar?
Digital Yuan will reduce the demand for the U.S. dollar and increase its currency demand. It is what China wants—to reduce its dependency on U.S. dollars and achieve greater financial sovereignty.
Digital Yuan will win in the long run:
China was the largest holder of U.S. Treasuries, with $1.2 trillion in May 2017, followed by Japan with $1.1 trillion last year. It makes it the most significant foreign creditor to the United States government and its largest trading partner, which is probably why they were not thrilled to find out that China was planning on implementing digital Yuan in international trade and investments. However, the value of the Chinese currency is only likely to rise as the government and central bank continue to implement measures that will make its digital Yuan more attractive.
The U.S. dollar loses in the short run:
The U.S. dollar has been losing approximately 6% of its value against other currencies since 2008. It is expected to lose even more value if China implements measures leading to a stronger renminbi.
The world would then be less dependent on U.S. dollars as a global trade currency, eventually decreasing demand for U.S. Treasuries, making it harder for foreign governments and investors to hold on to buy them.
