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The CBDC is envisioned as a medium of exchange for the renminbi, or yuan, which is currently used for domestic and international payments. You can check yuan-pay-group.net to get an automated trading experience by accessing the best-in-class trading bots and trading strategies in Digital Yuan. CBDCs are issued as digital notes, coins, or both. People can use them for transacting domestically and internationally for all payments – including utility bills, loans, and payments of taxes and fees.
A quick primer on CBDCs
CBDCs are central banks’ digital currencies that users can exchange for domestic and foreign currencies. Not only would this allow the central bank to bypass some of the technical difficulties faced by a physical currency, but it also would give them more control over the money supply, which is often tied to economic variables and external events.
For example, a weak economy can lead to deflationary conditions in which people hoard money as they expect prices to fall in the future. As a result, it can further reduce the money supply in the economy, thus leading to a vicious cycle.
Its full rollout is expected by 2022, giving it an advantage in providing an alternative to cash over other countries that still use physical notes or coins.
Why is China keen on it?
The impetus behind the push for a national CBDC comes from the financial sector. The banking industry’s woes have been exacerbated by high levels of non-performing loans, which have been made due to the high volatility in foreign exchange markets. As a result, the central bank has found itself unable to control volatility to bolster stable prices while at the same time ensuring that interest rates are not too high and that inflation does not rocket out of control.
As a result, CBDCs will be able to monitor currency prices and even prevent them from falling, allowing them to boost growth and increase stability. In addition, it will be easier to control the money supply in a digital environment, as there will be no risk of counterfeiting the currency. The CBDC will also enable the authorities to cut costs that typically come with printing notes and minting coins.
It will also help fight tax evasion as it would bring payments and transactions online, making it easier for authorities to see what people are earning and spending. It would have a similar effect to demonetization, where physical cash holdings were replaced by digital ones (in this case, by CBDCs), which meant that the authorities had a record of transactions for taxation purposes.
Some potential benefits of CBDCs:
* Easier to control the money supply.
* Lower cost associated with printing notes and minting coins.
* Bangs for the buck regarding value-added tax (VAT) and social security contributions (SSC).
* Helping fight tax evasion.
* Providing a record of transactions for taxation purposes.
How will the adoption of CBDCs affect Bitcoin?
As more governments embrace a CBDC, there will be less need for physical cash, which could put a dent in the popularity of private digital currency. It would be reasonable to assume that as people move more towards using official digital currencies, they would also prefer electronic payment channels like debit and credit cards rather than Bitcoin.
However, it is essential to note that this does not mean that CBDBs will kill off cryptocurrency entirely, as it still has its place in the digital space – especially regarding personal use and day-to-day transactions. Furthermore, the emergence of internet-based payment systems (e.g. WeChat) that are available in local currencies only also gives rise to the possibility of cryptocurrencies maintaining their utility within homogeneous populations.
For instance, even if China were to move towards a national CBDC backed by the yuan, it doesn’t mean that citizens would be prohibited from using other currencies such as USD or EUR when making payments abroad, nor does it reduce the need for citizens to use cryptocurrency in these scenarios. On the contrary, CBDCs could bring more excellent utility to cryptocurrency as they would provide an alternative to other forms of electronic payments.
Furthermore, the emergence of CBDCs would also strengthen the case for Bitcoin as an alternative currency. For example, cash is especially vulnerable to money laundering as it is difficult for authorities to determine who has access to the funds at any given time — a problem that does not exist with digital currencies that can be traced and verified via blockchain. Looking ahead to the future
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Adopting a CBDC by China may also pave the way for other governments to follow suit. If it is successful, we may also see central banks in other countries issuing digital currencies. However, the most significant advantage of CBDCs over cryptocurrency is that a digital currency issued by a government is subject to regulations, and its value can be easily traced and monitored. While this could potentially give rise to a global cashless society, it would also allow governments to keep track of citizens’ financial transactions, which some people may find intrusive.
