The upcoming launch of a digital yuan in China is the latest in the ongoing fiat currency against bitcoin battle. Recently, the Chinese government has been harsh on cryptocurrencies. First, ICOs were outlawed in China in September 2017. Subsequently, exchange sites that traded bitcoins or other facilitation services were ordered shuttered. This made buying bitcoin in China difficult. But this is not just blanket ban instead it is a simple preparation of what is about to happen.
While central banks worldwide struggle to control bitcoin, China is working to become the first country to implement its own digital currency which is known as the Digital Currency Electronic Payment (DCEP) project. They are securing the success of its own digital yuan by prohibiting other entities from issuing cryptocurrencies and restricting bitcoin exchange. Unlike other cryptocurrencies, trading in the digital yuan will not protect your identity, and its value will be as stable as the government-issued currency.
With the goal of decoupling the yuan from the global dollar payment system, China wants to be the first country to issue digital currency. The right to issue and control a digital currency would become a “new battlefield” for governments to compete. They consider yuan as both physical and digital currency to create a new payment network to end the dollar monopoly. This result to the rising numbers of people who want to join the yuan pay group.
Will The Public Accept PBOC Crypto?
Predictions are difficult. The public has responded positively to the tests on the use of digital yuan in a lottery. But China is already a cashless society. Even street-food sellers and market booths in rural towns prefer to utilize payment apps instead of cash.Mobile wallets like as WeChat Pay and Alipay already have substantial userbases in China and it is doubtful that users would switch to the government app overnight. However, it has been stated that in contrast to current payment processors, there would be no costs linked with the digital yuan.
The Battle Between Digital Yuan and Bitcoin
While the digital yuan has the endorsement of the PBOC, there are key ways in which it cannot compete technically with bitcoin. There are two key reasons why the PBOC is not willing to launch its digital money on blockchain: First, analysts have reservations that any network could manage the sheer amount of everyday transactions of the population in China. Second, the decentralization and openness inherent in blockchain technology are two principles that go against the Chinese government’s objective to “hit a balance” between secrecy and the need to lower down financial crimes.
The digital yuan might let the PBOC to monitor bank lending more closely and to route financing where it sees appropriate, but a central-bank-controlled digital yuan could never really compete with the value propositions of Bitcoin.
The economic effect of the planned DCEP is yet uncertain and only the future will tell whether yuan pay group will assist or damage China’s economy. This can be considered a new chapter in the continuing conflict between central bank-controlled fiat currencies and peer-to-peer of bitcoin.