China tests sovereign digital currency to counter dollar settlement system
Amid COVID-19 crisis, China has begun trials of a digital yuan in four urban areas. China is the first nation to try the digital currency in its four cities namely Xiong’an, Chengdu, Suzhou, Shenzhen and other areas that will host 2020 Beijing Winter Olympics.
The digital currency, known as e-RMB will be used to subsidize transport in Suzhou. It will also be utilized to pay salaries of government officials and public servants for the month of April. In Xiong’an, the trial will be based primarily on food and retail.
A statement by People’s Bank of China envisaged that the currency will not be issued in large amounts for public use. The chief purpose of introducing it is to promote functionality and not to lead to any possible inflation upheaval. The digital currency has been introduced to provide the businessmen and investors an alternate for dollar settlement. The pandemic, which has led to an overall stall of economic activities around the globe has affected China as well.
A state run digital currency provides an alternate to dollar settlement system and helps to avoid being a victim of any sanction or threat for exclusion at country or company level. During COVID 19’s crisis, the stability of Chinese Yuan has attracted many investors. The US dollar and Chines sovereign digital currency systems can operate mutually or side by side now.
China has begun testing an official digital currency. If successful, it could change how the central bank manages liquidity and physical cash https://t.co/X1qPCoTF6E
— The Economist (@TheEconomist) April 24, 2020
In Xiong’an , 19 retailers including McDonald’s, Subway, Starbucks have been invited to try the digital yuan. However, Starbucks has denied its involvement since then.
People’s bank of China will issue the digital yuan, solely. It will lend it to commercial banks and other operators. Public would be able to convert money in their accounts into digital version and make deposits with the help of electronic wallets. The currency can be exchanged without the use of internet and to make contact less payments.
No date has been confirmed for roll out of the digital yuan as of yet but multiple reports indicate that it may be launched by mid of the year, 2021.