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Analyst Chaslau Koniukh: Chinese digital yuan threatens dollar

18.07.2020
2 min read

How can the Chinese digital yuan change the payment infrastructure

The emergence of digital currencies poses a significant threat to the financial system, but so far traditional and electronic money have managed to coexist together. However, everything may change soon – the Chinese digital yuan has already passed the test in 4 major cities of the country, and is ready to conquer other markets. In this regard, U.S. sanctions will not be as effective as the White House would like. Analyst Chaslau Koniukh shared his thoughts on how China’s electronic economy will develop and its impact on global processes.
In 2014, Chinese experts conducted a study and came to the conclusion that the digital currency, which will be controlled by the government, will allow the economy to develop much faster. Since then, the development of the digital yuan has started. This currency is different from the popular bitcoin, as the latter uses peer-to-peer technology, decentralized, which ensures confidentiality and security of payment transactions. The new yuan is hyper-centralized and its rate is controlled by the Central Bank of China and its system is integrated. The currency is expected to be subject to a two-tier structure – the country’s main regulator will create digital coins and send them to other state financial institutions and payment systems such as Alipay and WeChat. The latter will expand e-money users through a mobile banking platform and special applications.
In this case, the Central Bank monitors each transaction and makes an instant transfer of funds from one account to another.
Specialists are improving the structure of the digital yuan in order to rid it of the shortcomings of other cryptographic currencies: unstable value, limited application and lack of legitimacy in a number of states. It is convenient for China to use this type of money for internal payment transactions in retail.

Chaslau Koniukh notes that the electronic money system makes it possible to conduct transactions bypassing the dollar and financial control by the United States. A number of banks from other countries are also working on using smart contracts to be able to transmit messages through digital currency.
The digital yuan also serves strategic purposes. It can be used as a tool in trade conflict with the United States to undermine Washington’s influence. According to Beijing’s official statement, the new electronic system will help the country develop technologically. In addition, the central bank will be able to prevent illegal activities, and the authorities will be able to control political processes and identify dissidents.
However, the US is also working to create digital money to improve the payment infrastructure. This now seems to be extremely difficult, as this currency can become a competitor to the systems that many technology companies have developed.

Tags: Analytics
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