Industry expert Richard Turrin: The digital yuan could soon become serious competition for the US dollar

Trial of China’s digital currency E-Yuan
Challenge for the US dollar in international payments
Centralization of digital payments in China

China’s central bank, the People’s Bank Of China (PBOC), has been working on the introduction of a central bank digital currency (CBDC) since 2014 and is thus well ahead of Europe and the USA in developing its own digital currency.
Industry expert Richard Turrin argues that countries like China will try to break away from the US dollar with their own digital currencies and gradually reduce their mostly 100 percent dependency. He also predicts that the digital version of the yuan could challenge the US dollar in international financial markets within this decade and challenge the US dollar as the preferred means of payment in international trade. China, as the world’s largest exporter of goods, may slowly oust the US dollar, Turrin told CNBC. The e-yuan will therefore play an increasing role if the digital currency is also used in international payment transactions.

Testing of the E-Yuan

For the Chinese New Year in February 2021, according to a report by the Financial Times, 200,000 “red packets” worth 200 RMB each (31 US dollars) in the form of digital renminbi were drawn among the population for the first time, thus ushering in the first test phase. As part of the pilot project, 270 McDonald’s branches in the Shanghai area could be used to pay with the e-yuan. Other US franchise companies such as Starbucks or Subway have already accepted the Chinese central bank digital currency (CBDC). The wallet app, with which the digital currency can be stored and spent, is only available to the selected users in this phase.
The Winter Olympics were another test run for the digital yuan. The digital currency was made available to national and international users there for the first time by means of a crypto card. Richard Turrin, the author of the book “Cashless: China`s Digital Currency Revolution”, reports that cashless payments at the Beijing Olympic Games could only be made using Visa or the e-yuan. The crypto card could be topped up at specially designated stations and connected to your own smartphone.

Control of digital payments in China

Not only the (gradual) replacement of the US dollar is considered a motivation for China’s own cryptocurrency, but also the control of digital payment transactions domestically. In China, paying via apps like Alipay or WeChat has long been part of everyday life, and tech giants like Alibaba (Alipay) and Tencent (WeChat) are a thorn in the side of the central government because payment flows cannot be controlled. With the help of the e-yuan, the government can advance the centralization of digital payments and regain control, experts told the Financial Times.

International importance of the digital version of the renminbi

Is China now rushing to help Russia with the digital currency in circumventing the sanctions and in support of the Ukraine war? The expert Turrin says quite clearly: “No”. China has expressed its political ties to Russia by refusing to describe the Russian invasion of Ukraine as such and blaming the United States for the conflict. However, China does not currently have the technical means to use the e-yuan internationally and also does not want to jeopardize the further development of the new currency and its broad acceptance.

Demands for digital versions of the existing currencies are also getting louder in the USA and Europe: President Biden called for the development of a digital US dollar to be promoted, to which the US Federal Reserve has not yet commented. Industry expert Turrin strongly suspects that the USA is at least five years away from testing its own digital currency. In Europe, the development of a digital currency is still in its infancy: The European Central Bank only started the two-year investigation into what a digital euro could look like in October 2021.
More than 1,000 years ago, China revolutionized the financial market with the introduction of paper money, where previously there was only coin money. Is China now heralding another paradigm shift with the introduction of a central digital currency?

Editorial office finanzen.net

Image sources: helloabc / Shutterstock.com, Yu Lan / Shutterstock.com