Expert: China’s Digital Yuan Will Target the Dollar, Not Bitcoin
With its forthcoming digital yuan, China will aim to rival the U.S. dollar, not Bitcoin, say experts.
Matthew Graham, a veteran investment banker in China and the CEO of Beijing-based Sino Global Capital â€” analyzed what is known so far about the forthcoming digital currency and argued that the Chinese government sees new technologies as a â€œleapfrog opportunityâ€� to chip away at the dollarâ€™s hegemony.
Speaking with Boxmining founder Michael Gu at the Unitize conference on July 6, Graham said that even though itâ€™s extremely difficult for China to internationalize the renminbi:
â€œSwift, CHIPS, Fedwire […] theyâ€™re antiquated, they’re expensive, they’re slow. It’s 2020 and we have transactions that take three days to clear and that are far more expensive than they should be. All of these technologies that underpin much of the USD-centric global economy are really showing their age. So that’s a big opportunity [for China].â€�
Beijing uses the acronym DCEP to refer to its forthcoming digital currency electronic payment system and, as Matthew Gu noted, has â€œborrowed a lot of its technological details from blockchain,â€� including concepts such as UTXO.Â
Yet DCEP is a far cry from public blockchains such as Bitcoin. It will reportedly be issued by the Peopleâ€™s Bank of China and remain under the central bankâ€™s full control and authority, as with other existing national fiat currencies.Â Â
Graham emphasized that â€œif you’re approaching this [DCEP] from a crypto or blockchain framework, I think you’re going to really have a hard time understanding what it is and what and why it’s so important.â€�Â
The new technologies integrated into the digital yuan, including those aspects learned from blockchain, are being used to a different end. Gu cited comments from the chairman of the China International Economic Exchange Center, who has previously said:
â€œDCEP can achieve real-time collection of data related to money creation, bookkeeping, etc, providing useful reference for the provision of money and the implementation of monetary policies.â€�
Graham added that for monetary policy, DCEP â€œcould be very useful for implementing negative interest rates.â€� Moreover, â€œit opens up a lot of capabilities in terms of AI and machine learning for fraud detection […] and thereâ€™s potential programmability aspects as well.â€�
Contrast this with systems such asÂ Fedwire, CHIPS, SWIFT â€” the â€œplumbingâ€� that underpins much of the global dollar economy. These, as Graham noted, are â€œthirty, forty, fifty year old technologies, with all the frictions and costs.”
â€œThere is a leapfrog opportunityâ€� here, he said. â€œDCEPâ€™s not about Bitcoin. It’s about potentially internationalizing renminbi, at least to some extent.â€�
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