German magazine “Manager” April 24 article, with the original title: China can change the currency world again, with people already using digital yuans to complete payments.
The digital renminbi will soon play a role in cross-border payment transactions. While this advance by Beijing will not break the dominance of the U.S. dollar anytime soon, the global currency landscape is about to change dramatically.
China first invented and began using paper money about a thousand years ago, when money was still being minted for payment. Today, China will once again be the driving force behind monetary reform. As Europe explores whether it should introduce a digital currency, Beijing has paved the way for the launch of the digital yuan.
Over the past few months, the People’s Bank of China has distributed digital yuan “red envelopes” via an app to thousands of randomly selected people, who were able to test spending at trial sites. The digital renminbi is included in China’s latest 14th Five-Year Plan.
Digital and mobile payments via apps have long been a part of Chinese people’s daily lives. The rapid spread of apps like Alipay and WeChat has led to fewer cash payments by Chinese people. But this has also brought side effects, such as loopholes in regulation and increased bitcoin speculation. As a result, the state is trying to regain control of electronic payments by dominating digital currencies.
Beijing has still not made public its specific plans for a digital yuan. The banking industry and analysts believe that China’s ultimate goal is to digitize its currency and assets. Beijing also has the idea of making its currency cross national borders. A joint project between China and the Bank for International Settlements is studying the possibility of using the digital yuan in cross-border payment transactions. During the 2022 Winter Olympics in Beijing, China plans to test the digital yuan with the participation of local residents, foreign athletes and tourists.
The United States is keeping a close eye on China’s plans. The Biden Administration fears that China’s digital currency could weaken or even topple the U.S. dollar’s status as the main reserve currency. But Li Bo, deputy governor of China’s central bank, said the goal of internationalizing the yuan is never to replace the U.S. dollar; rather, the goal is to allow the market to make choices and further facilitate international trade and investment.
Recently, a large amount of capital has flowed into China’s financial markets, which has increased the volume of global RMB transactions. However, the yuan accounts for no more than 2 percent of global payments and central bank reserves. Against this background, it will not be easy to break the dollar’s monopoly, whether the yuan is digitized or not, says foreign exchange expert Stephen Qiu. But experts generally agree that Beijing is playing a pioneering role in the accelerating global process of developing state-issued and controlled digital currencies, and that the digitization of currencies will reshape the global financial landscape.