In this piece, we will discuss what exactly the Digital Yuan is and how it impacts traditional banking.
To keep the piece unbiased, I’ve listed both the pros and cons of the e-RMB on banks. I personally am all in for digital currencies but not so sure with the Digital Yuan. Why? Keep reading and this is exactly what will get answered.
Table of Contents
What is China’s Digital Yuan? (Not what you think).
The digital Yuan, also called the e-RMB sure is a “digital currency” but far from what you expect a Cryptocurrency to be.
For starters, it’s a completely “centralised” digital currency. It’s controlled by the People’s Bank of China.
Secondly, it’s almost an entirely legal digital currency. Most “Cryptocurrencies” are struggling with legalities in China.
Third, it’s not mined like most other Cryptocurrencies and is almost digitally printed. It’s also backed 1:1 with the Chinese Yuan.
The Digital Yuan also doesn’t believe in international friendship, at least for now. It’s to be used domestically in China which is almost the opposite of what Cryptocurrencies are made for.
So, when thinking of the Digital Yuan, just remember it’s just a digital version of the Renminbi, a digital alternative.
China’s Digital Yuan: Positive Impact on Traditional Banking
China’s Digital Yuan may have a number of positive benefits on traditional banking institutions:
- Better reach: The digital Yuan, being a digital currency, can reach the underbanked population more easily. It only requires a phone and an internet connection. These are requirements that are easily met by most of the Chinese population.
- More control (and less crimes): The Digital Renminbi is 100% controlled by the bank. This means, they can control 100% of the transactions. This also means financial crimes such as money laundering, tax evasion, fraud etc. can be reverted at will and don’t have to be relied on “recovering” the money as it’s 100% traceable.
- Speed: Bank transactions are still pretty slow, for any nation. This also may be a deliberate delay in security or other reasons. However, the Digital Yuan theoretically processes transactions much faster than banks. It’s more because of the overall steps required to carry out a transaction which grants it the speed.
- More money for banks: This is a speculative point. Banks, if allowed by the Chinese govt. to distribute Yuan, may charge a fee for the service leading to more revenue.
- International impact: It’s almost the first time a nation is launching one such digital coin. This may indirectly impact international banks and nations as it shows at least an acceptance for digital currencies, from the world’s most population-rich and successful nations.
Well, the digital Yuan is a two-sided coin, just like all physical coins are. Hence, it also may have a few negative impacts on banking.
China’s Digital Yuan: Negative Impact on Traditional Banking
Here are a few major ways Digital Yuan could impact banking negatively:
- Lower deposits: Banks need deposits to fund loans and keep operating. A digital currency may impact people’s willingness to keep depositing in banks instead of using the Digital Yuan.
- Lower overall use of physical banks: People, if swayed by the digital Yuan, will start using it for money transfers, online payments and other services which were so far entirely the bank’s responsibility.
- Threat to privacy: China isn’t big on privacy anyway. However, the digital Yuan kills whatever little privacy cash or other transactions modes still do offer. It’s 100% transparent and traceable. They’ll always know who’s making a payment, the amount, exact time and basically every other detail about a payment.
- Legal uncertainty: The legalities around the e-RMB aren’t laid out yet. This means, the role of banks and the legalities surrounding it aren’t clear. Of course, because it’s controlled by the bank itself, this probably would just be a bit of initial confusion rather than actual obstacle.
- Safety concerns: The bank can keep your money safe by employing strong vaults and guards. Keeping the e-RMB safe is a bit harder as it’s digital.
If you aren’t sure of the Digital Yuan, or any other Cryptocurrency, I’d recommend educating yourself before jumping on the train. You can use platforms like Yuan Profit that connect you to educational platforms for investors 100% free of charge.
Conclusion
I’ve tried to stay completely unbiased throughout this piece. This is why I’ve listed both the benefits as well as the problems it may pose for traditional banking.
In simpler words, the digital Yuan is just an option that lets you choose ease, comfort and access over privacy.
You may or may not like the digital Yuan, however, I’ll recommend educating yourself on Cryptocurrencies and investments anyway.
