China is the first country to develop a digital currency available in the mobile payment system. The website yuan pay coin will help traders to understand more about trading.
CBDCs are designed with two purposes: to simplify and broaden access to financial services and improve security against risks of financial crime and terrorism.
Digital Yuan can have multiple benefits for both countries and citizens: reducing costs for governments when issuing money; making payments easier; increasing transparency to facilitate regulation of private banks; speeding up settlements between banks; enhancing anti-money laundering controls when transferring funds from one account to another, and so on.
China’s move may not be a surprise because of the country’s social media penetration rate. Thanks to the massive adoption of mobile phones, there are over one billion internet users in China.
When people can pay for everything with their phones (through WeChat), they can directly send money to friends and never have to deal with cash. Currently, WeChat Pay and Alipay are what people use every day in China for their purchases and transfers.
Chinese digital currency will offer Chinese users an alternative to the current situation in which Alipay and WeChat Pay dominate all market share. During their work in global markets, digital currencies need to improve their security and reliability.
If a central bank backs a CBDC, it will be more secure than an alternative currency. It will satisfy citizens’ demands for stable money and promise greater security at the same time.
More forces will be deployed to protect people’s assets by centralizing the financial system. There are significant advantages of issuing digital yuan in China; let’s discuss them in detail.
Money can meet the financial needs
Since users can issue money in China, more companies will be attracted by people to putting their capital into financial business. Therefore, it will promote investment growth and make available more funds.
Furthermore, this scheme is also beneficial for companies because they can issue their currency without going through financial institutions.
Thus, they can save money on raising deposits and finding a partner bank. As an innovative system, digital yuan issuance could benefit other countries as well – because it will help these states cut down costs when issuing their currencies. In addition, the security of holding money could be increased.
The expansion of financial services will inevitably bring a massive flow of funds. To prevent the illegal use of capital in financial activities, the government can issue new currency to replace the old one; this way, users cannot lose their assets.
Moreover, if a digital currency is used in real-world transactions, it will serve as a more secure “banknote”. In addition, the transparency and traceability features might help regulate the behavior of banks.
Digital currency is more transparent than traditional notes and coins. With digital yuan, it is easy for regulators to monitor people’s financial activities through mobile payments. As a result, it will allow regulators to protect their users better.
People can enhance the efficiency of money transfers
When money is transferred, many intermediate links are involved in the process. However, after a digital currency has been issued, it could be sent directly to any other person without going through any bank intermediary.
Therefore, more efficient processing systems could be developed by the user, and the population could be spared by people from numerous fees imposed by intermediaries.
In addition, digital currency will facilitate payment between different countries because users won’t feel physical constraints to hold it as they do with typical cash.
Digital currencies can satisfy all people’s financial needs in China and will gradually spread out in the global market. Therefore, if a CBDC can solve its users’ financial problems and simultaneously promote economic prosperity, it will indeed become a successful project in China’s future.
Economic cooperation
Digital currency could foster global economic growth by facilitating international trade. There are still significant differences in costs when exchanging currencies between different countries.
With digital yuan, users don’t need to worry about the high cost of exchanging money between different states. Digital yuan will form a bridge among countries and make transactions easier.
The digital yuan can be used as an international payment method for trade transactions to boost trade between related economies while reducing transaction costs.
For example, if China and the United States want to trade with each other, they can use digital yuan to bypass the exchange process of cash. The two sides could also use digital yuan to buy goods from each other.
Digital currencies have been around for a while. However, they have yet to be widely accepted in international trade. Because digital currency systems still need to be integrated into existing financial infrastructures, finding partners who want to cooperate with the digital currency system is challenging, and the risk of using digital currency is high.
In addition, it still needs to form a legal framework. Nevertheless, not only is the digital yuan a good solution for individuals and businesses, it can also be an effective way to facilitate cross-border trade transactions among countries.
