China is undoubtedly leading the CBDC race but its phenomenal growth could threaten the existing monetary standards with the new digital yuan.
The digital yuan’s transactional volume exceeded $14 billion, or approximately 100.04 billion yuan during its pilot phase, making it the world’s most widely adopted central bank digital currency (CBDC).
Digital Currency Made In China
The transaction data came from the Bank of China. According to the bank’s post on WeChat on Oct.10, by the end of August, 360 million transactions were made with digital yuan in pilot areas of 15 provinces.
The rapid growth of e-CNY is partly due to efforts to aggressively promote the use of central bank digital currency. The digital yuan is currently used by over 5.6 million merchant stores in the country.
The pilot phase not only expands in retail but also in wholesale with the adoption of a number of state institutions capable of citizen payments.
The bank states,
“Multiple e-government service platforms have opened digital renminbi payment services, supporting online and offline channels to handle various public utility payments, using digital renminbi to issue tax rebate funds, special funds for monthly medical insurance payment, funds for helping people in need, and ‘specialized, special and new’ enterprise support funds, etc.”
Following the initial success, China’s next target is to explore the implementation of the CBDC in cross-border trade.
According to the report, regulators are working with the Bank for International Settlement to explore the multilateral cross-border option while ensuring the users’ data privacy following the principle of, “anonymity for small amounts, and traceability of large amounts.”
So, So Dangerous
The digital yuan, due to purported benefits such as faster and cheaper transactions, could give China the opportunity to reduce costs and increase the ease of conducting cross-border trade.
Using CBDCs to settle cross-border transactions across existing systems will bring significant benefits to China’s geopolitical and trade position.
China is well-known for its solid stance against Bitcoin and cryptocurrencies.
The country has banned cryptocurrencies but made a significant investment in the digital yuan. Digital yuan services were previously integrated into Alipay and WeChat Pay, two leading mobile payment services in China.
As of 2021, the e-CNY app surpassed 261 million organic users, even if the e-CNY wasn’t officially launched on the Google Play app market and the Chinese App Store
USD Dominance Under Threat?
Many other governments around the world are working on the launch of CBDCs, but China is the first to launch it on a large scale. The country has been reputable over the past few years for its ambitious goal to become the tech and finance leader.
Meanwhile, the performance of other top countries in researching and developing CBDCs has lagged behind, which could seriously threaten the regulatory role in global financial markets.
After a long period of delays, the US Federal Reserve (Fed) released a report on the possibility of creating a central bank digital currency (CBDC) at the beginning of the year.
The Fed wants to introduce a CBDC intended to complement existing financial systems, rather than a complete replacement.
However, many get concerned about the possibility that the national digital currency can affect current monetary regulations, the structure of financial markets, not to mention user’s privacy.
The hesitation of the US is an opportunity for China to step up and lead the race with its digital yuan. Unlike the US, China’s goal is somewhat clearer – it targets to replace the fiat currency with the digital yuan.
The country’s regulators will extend the use of its CBDC to additional regions in China, including Guangdong.
CBDCs had historically been seen as a risk to national security by officials in the United States. Because the use of China’s e-CNY can be exploited to evade sanctions and put users’ personal information at risk, a measure to place usage restrictions on the digital currency was proposed in March.