I claim ignorance of life and this world. I only know about the things in front of my eyes. Humanity does, however, understand that there is more to life than what we perceive. Value, for example, is one concept we can't see but infer. We infer that the value of a thing is great if it is challenging to acquire. Similarly, the distance between you and something else affects your perception. A country, or galaxy, far, far away appears to have little significance upon your life-that is, until that land's actions impact your livelihood.
I hope everyone is well amidst life's turmoil. One particular topic I don't feel we cover enough is China. Similar to the USA and England of old, China is flexing its muscles. Its people are settling into a developing country that will soon match unless it already occurred, the technological might of first-world nations. One area China is already impacting resides in the world of digital currency.
China and the Digital Yuan
The digital Yuan is already here. China has been integrating and testing the concept of digital currency in a way no other nation dares through their Digital Currency Electronic Payment (DCEP) project. In August of 2020, The Chinese Central Bank reported that they completed the final stages of testing in the Greater Bay Area of Shenzhen, China.
The Chinese government plans on officially implementing the DCEP, including Hong Kong. It spent years testing this digital currency across Suzhou, Shenzhen, Xion'An, and Chengdu. They selected top-tier citizens to carry out their tests by using the money in everyday purchases.
China generated interest in the testing by offering digital currency as a lottery to contestants in the test cities. They issued over one million dollars to citizens that registered for the lottery contest.
China mandates that any business currently accepting digital payments shall accept the digital yuan. Companies that don't follow this mandate may be subject to fines or revocation of their license. Once China fully implements the DCEP currency, it will be the largest utilized in the world. It would have to be since China is using it to replace the conventional form of money.
China's DCEP currency use heightens security. It is easier to track down digital transactions versus printed currency. Costs associated with generating or recycling bills also get eliminated. Finally, the transaction speeds of a government-backed digital currency would also surpass those of other services. China completed the development of the DCEP infrastructure. It just needs to complete the preparations for nationwide use, which may take years to finalize.
China will not set its DCEP currency for trade or speculation. The intent is to replace their Reserve Money systems with something that has low volatility. In a country dependent upon the control of its citizens, I imagine this is very important. However, low volatility in the value of any currency should be a goal. Shouldn't it?
The Trend is Spreading
Digital currencies are in development throughout multiple countries. Thailand is developing their central bank digital currency (CBDC) while Venezuela is trying to stabilize its economy through the use of the Petro.
Some sites report that digital currencies could boost growth and provide a more stable and efficient economy. Distribution would be easier if the infrastructure exists, and it may reduce reliance on the position of superpowers. How important would the USD be if a country's digital currency didn't rely on it? The value of the USD may lower as a result.
In a country like Venezuela, however, I'm not sure about the benefits of digital currencies given the volatility of their government. Here's hoping that their country improves sooner rather than later.
Government Currency vs. Bitcoin
I initially wrote this portion of the article with references and charts describing the benefits of government-backed currency over decentralized ones. I deleted everything after realizing a straightforward fact the use of money depends upon trust. China and Venezuela are the only two countries using state digital currencies in any widespread fashion. They're also forcing their citizens to utilize the service.
Additionally, China hasn't yet breached the topic, in detail, of using the currency across state lines. Given that their current position is not to trade the new money, it's likely that China would keep it in-house.
Bitcoin seems to rise again following Elon Musk's change in position regarding the top cryptocurrency. Considering the plunge in value that occurs following the remarks of one person, it's easy to see why countries would require stability and low volatility in their currency. Such a need may be a reason for China refusing to place its DECP on the market.
Image by Gerd Altmann from Pixabay
Thank you for reading and following on throughout my Hive journey. I don't pretend to be knowledgeable about finances, but I do like reading about it. I welcome any comments that would help raise my understanding!
How do you feel about China's transition to a digital currency? Do you support and welcome it, or do you feel the conventional system works better?
Also, what's your take on Venezuela and its use of the Petro?
Don't forget to comment below! I look forward to engaging with everyone.
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