China is now a global financial power, and its decision to make the digital RMB the first-ever central bank digital currency marks a new stage in global finance. If you want to start Digital Yuan trading in only three steps, Click here. You will get the best liquidity, and the platform is immune to volatility risk. The implications for this type of transaction are profound and, if properly implemented, could have global effects on innovation and business financing.
Therefore, China’s new financial technology will likely create an international benchmark for other countries to follow suit. It is another giant step towards globalization with monetary implications. It represents a paradigm shift in how money is created, distributed and regulated. For example, we are seeing new models for peer-to-peer lending, crowdfunding, prediction markets, etc.
Digital currency has the potential to reshape economic relationships across borders and cultures in unprecedented ways. It is why financial institutions have been quick to acknowledge its disruptive power. Banking, payments and financial technology accounting, clearing and settlement systems are being re-engineered to support a digital RMB.
Bitcoin has shown the way, albeit in an unregulated environment. China has identified that this currency is here to stay and has taken steps to develop its version. It is not an exaggeration to say that this decision represents the most significant development in global payments since the creation of SWIFT over forty years ago.
History:
The first centralized digital currency was the e-money Jiben, developed by the Central Bank of Israel in 1998. It was a pre-paid card that could be loaded with various denominations and used for financial transactions. It was at first widely deployed in Israel and then throughout Europe. Also known as electronic money (EM), electronic payment instrument (EPI) or electronic wallet, e-money is stored electronically as an alternative to cash or credit cards.
Whereas traditional currencies have a physical form, such as notes and coins, digital currency is based entirely on the information. It is not a new concept, with many forms of e-money and e-banking existing worldwide. In addition, many countries have regulated electronic payment systems, including mobile payments.
Digitally created currencies are not necessarily linked to existing central banking systems. However, they can be, as in the case of China’s digital RMB. Furthermore, the digital currency does not refer solely to “digital cash.” It can include any other transaction that usually occurs with a physical currency.
Under the supervision of China’s central bank, the PBOC, digital money is issued in commercial banks, credit unions, trust companies and securities depositories. In addition, the PBOC will entirely control the issuance of digital currencies.
China’s digital RMB is similar to other major economies since central banks and treasury departments tightly control it. Still, there have been some technical differences in implementation that make it unique. It is similar to the US dollars held by major central banks, but in practice, it acts more like gold. The Chinese government has clarified that they do not intend to replace their national currency with digital money. Not only are they prohibited from doing so, but no one else can use the digital RMB.
Digital currency cannot be issued by markets or businesses directly under the regulations of China’s central bank or government. Therefore, banks and other financial institutions will have to follow regulations established by the PBOC before they can begin providing services for this new form of payment. In addition to issuing digital RMB through commercial banks, there are other methods by which it can be issued. Commercial banks will be allowed to directly issue digital currency in the form of tokens, which the users can then exchange
for traditional money.
The PBOC also can issue digital currency directly through clearinghouses. It is as simple as crediting or charging a particular bank’s account with a certain amount of RMB at the central bank’s books. The issuance will succeed if an account has enough funds on reserve. Clearing houses will also be allowed to act as third-party issuers and providers of digital currency services.
Characteristics:
A CBDC is a digital instrument, like paper banknotes. All of the characteristics and functions of paper money are implemented in digital form. A key difference is that digital money, or central bank digital currency (CBDC) as it is sometimes referred to, is not convertible to or from a commodity such as gold.
Consequently, the PBOC does not have to increase liquidity measures during the rollout. It represents a significant change in approach compared to previous attempts like emCash in the late nineties. Digital RMB can be traded directly for other currencies on foreign exchange markets and exchanged for physical notes through banks or at designated bank areas by users.
