China is about to issue a digital version of the yuan based on blockchain and cryptocurrency technologies. Its five-year plan for fintech firm growth, which resulted in global fintech giants such as Alibaba and Tencent, comes to an end next year and the issuance is likely to become another quantum jump for China.
The digital yuan is expected to challenge the U.S. dollar as an international key currency and U.S. dollar-based international financial systems. The People’s Bank of China is predicted to combine its central bank digital currency (CBDC) with private mobile financial services faster and faster to that end.
Chinese President Xi Jinping recently announced a policy for blockchain technology growth and it is likely to become the starting point of the digital yuan. The People’s Bank of China already declared that it would become the world’s first digital currency-issuing central bank.
The digital yuan is a stablecoin issued by the central bank of China. In other words, it is different from private stablecoins issued in line with the U.S. dollar or the special drawing rights of the International Monetary Fund. The People’s Bank of China is likely to control it with its own blockchain technology. It is in this context that the National People’s Congress passed a cryptography law and the central bank included blockchain-based trade finance into the scope of fintech certification after the announcement.
The combination between the digital yuan and existing mobile financial services is expected to lead to a decrease in the size of the underground economy by means of the Chinese government’s personal information and data, the online and offline data accumulated by Baidu, Alibaba and Tencent, and the central bank’s data on digital yuan-based financial transactions.
The hegemony of the U.S. dollar will be challenged at the same time. “China’s efforts to accelerate the introduction of the CBDC are to quickly catch up with the United States in terms of financial competitiveness,” said an industry insider, adding, “The internationalization of the yuan can be carried out if the digital yuan is used in international trade networks down the road.” China may request anti-U.S. countries to use the digital yuan instead of the U.S. dollar with the United States desperately trying to block the popularization of the digital yuan, and then the global blockchain ecosystem will be increasingly controlled by the two superpowers.