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China’s plan to be the ‘global currency’

Up to 50,000 Chinese citizens in the country’s equivalent of Silicon Valley have woken up to money in their accounts after the government distributed more than $2 million worth of its new digital currency.The new money comes ahead of China’s leader Xi Jinping visiting emerging tech hub Shenzhen for celebrations marking the 40th anniversary of…

Up to 50,000 Chinese citizens in the country’s equivalent of Silicon Valley have woken up to money in their accounts after the government distributed more than $2 million worth of its new digital currency.

The new money comes ahead of China’s leader Xi Jinping visiting emerging tech hub Shenzhen for celebrations marking the 40th anniversary of the city becoming the country’s first special economic zone in 1980 as the emerging global superpower began to open up to the rest of the world, and is the first step in the introduction of the digital yuan.

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Depending on what happens in the years ahead, its thought the digital yuan might even replace the US dollar, which replaced gold following the 1944 Bretton Woods agreement, as the global reserve currency.

The government distributed 200 yuan (around $A41) each to 50,000 residents in a lottery in the largest test so far of the new currency, according to Quartz.

They can add more once they’ve spent that too: the lottery gives them a link to download the not-yet-public digital wallet.

Peking University Digital Finance Research Centre senior researcher Xu Yuan thinks history will look back on the introduction of the digital yuan as the other defining feature of 2020 alongside the novel coronavirus, according to a translated interview he gave in April.

He even went as far as saying the introduction of the digital yuan will have longer lasting impacts than the virus.

“Looking back at the current epidemic situation in 20 to 30 years, you may find that it is not a big thing; but after the digital currency landed, the commercial and financial forms of the entire human society will undergo tremendous changes,” Mr Xu said.

Local media reports the new digital currency works in a similar way to existing digital wallets like Alipay and WeChat Pay (or like Apple Pay or Google Pay).

Whether Beijing plans to compete with or replace those privately owned platforms, already used by more than a billion people around the world according to the US’ Brookings Institute think tank, isn’t clear yet.

Unlike those two platforms, the digital yuan is issued and controlled by China’s central bank, and can also work without access to the internet.

Being backed by the central bank, users of the digital yuan also don’t have to worry about the (unlikely) possibility that the commercial banks, Alibaba (Alipay) or Tencent (WeChat Pay) could go bankrupt.

There are however, concerns that it could make it easier for the government to track the spending of its citizens, including being able to see how much they’re spending and potentially what they’re spending it on.

“In theory, after using the central bank’s digital currency, there is no transaction behaviour that cannot be seen by the regulatory authorities, and the cash flow is completely traceable,” Mr Xu said.

“This means that all currency issuance and payment transactions will be online in real time.”

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