- 02 May, 2020
China is reported to have accelerated the development of its digital renminbi formerly scheduled to launch in August 2020. This sovereign digital currency will serve as a functional alternative to U.S dollar settlement system that hitherto allowed U.S to impose unilateral punitive sanctions on Chinese companies. The RMB-based trade settlement system will help counter such sanctions and facilitate global trade by reducing politically inspired disruption. These two settlement systems – U.S dollar based and RMB-based can operate simultaneously or on mutually exclusive basis.
China already began the phased trial for its new digital currency, starting from four major cities - Shenzhen, Suzhou, Chengdu, and, Xiong’an. The digital currency is formally integrated into the cities’ monetary system with some government employees expected to receive salaries in digital currency from May 2020. An online portal reported that over 19 retailers including Subway, Starbucks and McDonald’s were invited to trial digital yuan held in Xiong’an New Area. The government plans to issue digital currency in smaller amounts at a time, specifically targeting high transaction frequency businesses.
The Peoples Bank of China (PBOC) will be the sole issuer of the digital yuan. It plans to offer digital money to the commercial banks and other financial operators. People would be able to convert money in their bank accounts to the digital version of yuan and make deposits via electronic wallets. Digital payment platforms such as Alipay, owned by Alibaba’s Ant Financial, and WeChat Pay, owned by Tencent are already widespread in China. Furthermore, growing preference for "contactless" payments owing to social distancing measures post-coronavirus will shoot up adoption for digital payments.
China’s Wuhan, now known as the epicentre for coronavirus outbreak has infected millions of people worldwide. The virus from China has brought the economic activities of most countries to standstill, whereas China is pushing hard to erode the dollar’s primacy in the global financial market. If the national launch of digital yuan materializes by the end of 2020 or early 2021, China will become the first major economy to use digital currency, pioneering the digital transformation of global financial markets.