- China became the first major economy to deploy a digital currency.
- The digital yuan will bypass the global financial system.
- Economists warn, however, that this could put the US dollar at risk in the long run.
The People’s Bank of China (PBOC) has introduced its first blockchain-powered digital currency controlled by its central bank. The project lasted for seven years, according to reports.
The digital yuan is a government-sponsored virtual currency designed to track all movements of money. For example, the state will know all the details of what someone bought and where, FXStreet reported. It will be disconnected from the global financial system, where the US dollar is dominant.
The main goal is to gain more centralized control and replace some of the cash and coins in circulation, CNBC reported. Currency is also touted as a faster and cheaper way to conduct domestic and international transactions.
Thousands of people have been chosen by a lottery scheme, allowing them to spend their digital yuan in offline and online stores using an app, according to the Wall Street Journal.
Food and beverage giants including Starbucks and McDonald’s are said to have quickly accepted the new currency in Chinese stores.
The distribution of the digital yuan will involve a two-tier system. It will be distributed to commercial banks, which will then be responsible for getting the currency back into the hands of consumers, CNBC reported.
The PBOC also suggested that the two-tier structure can “avoid disintermediation in the financial sector” because the central bank will not be in competition with commercial banks.
Virtual currency is held in cyberspace. It is available on a map or via a mobile phone and features the silhouette of Mao Zedong, like paper money. Expenses do not require an Internet connection.
Support for the digital yuan is far from unanimous as some observers believe it could threaten the future of the US dollar.
Josh Lipsky, a former member of the International Monetary Fund, told the Journal: âAnything that threatens the dollar is a national security issue. This threatens the dollar in the long run, âin an article that described the digital yuan asâ a reimagining of money that could undermine a pillar of American power. â
Does that mean a digital dollar is on the way?
JÃ©rÃ´me Powell, the
president, thinks so, telling Congress that it is carefully studying the possibility of issuing one. It is now a “priority project for us”, he said.