China is expected to rival the US dollar with its forthcoming digital yuan. It is not targeting Bitcoin according to experts. After learning what it needs from the crypto space and blockchain, China wants to rival the United States with its highly-anticipated digital yuan.
An experienced investment banker in China and the CEO of Beijing-based Sino Global Capital, Matthew Graham, analyzed everything about the digital currency. According to him, the Chinese government sees the new technologies as a major ‘leapfrog opportunity’ to eat up on the dollar’s hegemony.
On July 6, he spoke to Boxmining founder Michael Gu at the Unitize conference where he said that although it is quite difficult for China to internationalize the renminbi:
“Swift, CHIPS, Fedwire […] they’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].”
China’s government uses the acronym DCEP in reference to its imminent digital currency electronic payment system. Matthew Gu noted that DCEP has “borrowed a lot of its technological details from blockchain;” which includes concepts like the UTXO.
DCEP And Digital Yuan
Yet DCEP is a far cry when compared to the different public blockchains like Bitcoin. It is scheduled to be issued by the People’s Bank of China. It will then remain under the central bank’s total control and authority as it is the case with the other existing national fiat currencies. Graham insisted that:
“if you’re approaching this [DCEP] from a crypto or blockchain framework, I think you’re going to have a hard time understanding what it is and what and why it’s so important.”
These new technologies integrated into the digital yuan which include the aspects learned from blockchain are currently being used to a different end. Gu referred to comments from the chairman of the China International Economic Exchange Center. The chairman previously stated:
“DCEP can achieve a real-time collection of data related to money creation, bookkeeping, etc; providing a useful reference for the provision of money and the implementation of monetary policies.”
Graham said that for the monetary policy, DCEP may be highly useful for the implementation of negative interest rates. Additionally, it opens up a lot of different capabilities in terms of machine learning and Artificial Intelligence for fraud detection. There are potential programmability aspects as well.
Compare this with systems like CHIPS, Fedwire, and SWIFT; which are the ‘plumbing’ that underpins most of the global dollar economy. These, according to Graham, are:
“Thirty, forty, fifty-year-old technologies, with all the frictions and costs. There is a leapfrog opportunity. DCEP’s not about Bitcoin. It’s about potentially internationalizing renminbi, at least to some extent.”