China banned its citizens from purchasing and trading Bitcoin and business owners from accepting these virtual currency payments. However, the country announced in 2019 that it was working on its national digital currency. After the announcement, speculation about what role blockchain would play in a digital Yuan spread widely. One reason for this widespread speculation was that news of the digital Yuan came just after Facebook announced its digital currency known as Libra, which was later renamed Diem but died eventually after the company sold off its assets.
Warning signs of regulatory hurdles facing Facebook were evident from the beginning. However, it was unclear three years ago whether Facebook, one of the world’s largest tech companies, would fail. Therefore, China moved up its timeline to launch the digital Yuan. When the director of the Peoples Bank of China was creating the digital Yuan, he claimed that it was not similar to Bitcoin and was for speculation. While authorities have promoted blockchain for cross-border financing and settlements, cryptocurrencies like Bitcoin and Central Bank digital currencies typically have little in common.
Differences between Bitcoin and Digital Yuan
The most significant difference distinguishing the digital Yuan from this electronic currency is its legal status. People can use digital Yuan as a payment mechanism or legal tender. On the other hand, this virtual currency does not have a central regulatory authority. No financial institution or government can regulate or manipulate Bitcoin. Besides, people can buy Bitcoin via yuan pay group software. But the digital Yuan has a state-formed centralized structure. However, the activities of the digital Yuan are strictly supervised and controlled by the Chinese government.
Another significant difference between digital Yuan and this electronic money is anonymity. This digital money provides its users’ anonymity as the blockchain that records transactions does not reveal their addresses. On the contrary, the Chinese government monitors how the digital Yuan moves around the economy. Therefore, the digital Yuan does not provide anonymity to its users.
This digital Yuan offers tons of benefits to its users. For instance, the digital Yuan ensures that the unbanked population can participate in the economy. Chinese citizens without access to banks can join in economic activities like trading cryptocurrency. Thus, the Chinese people will have more say in their economy.
Another advantage of the digital Yuan is that it might position the Renminbi to global reserve status. The Chinese currency is the second-largest economy globally. The digital Yuan might make it compare to the U.S dollar in the worldwide economy. In simpler terms, the U.S dollar has an 88.3% stake in the international economic network, while the Chinese currency renminbi only has a 4% share. However, digitizing the currency will change international payments, become a preferred method among international traders, and become more popular.
The digital Yuan is also traceable by the Peoples Bank of China, which adds another feature to China’s surveillance system for security, law, and order, making it easy for officials to serve foreigners within the law. This ability of the Peoples Bank of China to monitor transactions can help to prevent counterfeiting or the illicit flow of funds, such as terrorist financing or money laundering. In other words, this digital Yuan helps in crime detection and prevention.
Moreover, digital Yuan could potentially reduce or eliminate fee-based transactions for consumers, such as wiring and commercial apps.
Generally, this virtual asset has significant differences from the digital Yuan despite sounding similar. This digital Yuan is a digitized version of the physical Yuan for use in place of legal notes and coins.