The decision to make the yuan digital was born out of the need to reduce corruption and money laundering in China. In addition, a CBDC would give regulators complete control of the flow of funds in and out of China. It would also provide a new channel for households to invest their savings, which they have been restricted from doing since 2016. For those interested in trading Digital Yuan, this trading platform has the best trading experience.
The benefit is that if a bank’s transactions are conducted through its own CBDC, it would be easier for authorities to monitor its activity than when funds are transferred via traditional channels like wire transfers or checks, which could mean more tax revenue for Beijing. As a result, Digital Yuan is being pushed by the Chinese government to implement a CBDC, plans for which have been in the works for several years.
However, what needs to be clarified is whether the digital currency would be a central bank-issued unit or one that it would issue directly to banks. The government has already been looking into how best to conduct these transactions in a bid to comply with international standards.
One option is developing an interbank settlement system through which banks could transfer money between themselves, but this has its limitations as money can only be moved by people within its network – it cannot go outside of it. On the other hand, it could be more efficient as people can only transfer funds once every day, and accounts remain inactive after they are transferred. Let’s discuss how the digital yuan can reduce corruption and money laundering in china.
Government can get better track of money:
The government would get a better track of how money moves as every transaction would be recorded. In addition, the government wants to expand the role of private institutions in running the economy and managing pension funds. To this goal, it is currently working on issuing electronic money, allowing individuals to invest directly in public markets.
A digital yuan could give investors access to the stock market without go-betweens, who are present when an investor makes transactions using traditional financial channels like checks or wire transfers. As a result, individual investors and small businesses will facilitate more investment into stock markets. It will also help reduce corruption and money laundering as the government would monitor all financial transactions. To curb corruption, China has been moving towards a cashless society in which individuals and businesses make payments digitally using QR codes scanned with smartphones’ assistance.
Banks track all payments. The concern is that some businesses – like those owned by individuals with connections to the government – could have access to more money than others, which poses a conflict of interest. Introducing a digital currency could eliminate this problem as businesses would only have access to funds they generated themselves.
Digital Yuan can make voting transparent:
To develop its economy, the Chinese government wants a more transparent voting system in which every vote is registered and verified. People can achieve it through a CBDC as people would transfer funds electronically within the banking system, allowing the government to track how money is spent following elections.
Everyone agrees that nobody likes corruption and that China has several problems with it. For example, Beijing had to spend over $130 billion in 2014 fighting the “One Belt One Road” initiative to link the country with new ports and rail lines in other countries.
Beijing has also been cracking down on foreign companies that it believes are not contributing enough towards China’s economic development.
Digital Yuan removes reliance upon cryptocurrencies:
China has banned using cryptocurrencies because people can use them to launder money. The government is already discussing how to provide more regulation on blockchain technology, which facilitates cryptocurrency transactions. Some companies are already developing a blockchain network that the government could use to track financial transactions through smart contracts.
By moving all transactions within the banking system, a digital yuan would remove the need for China’s central bank to regulate cryptocurrencies. It would also give it control over how and when people can move money outside of its borders, which is impossible with Bitcoin or Ethereum as they are neither issued by any central authority.
This initiative aims to boost trade, tourism, and investment between China and other nations. People could use it to operate a digital yuan if Beijing goes ahead with the government’s plans to issue one. If the government of other countries does issue a CBDC, it will be the first example of a central bank conducting monetary policy on its own.
Digital Yuan decreases counterfeiting of money:
A digital currency issued by the government would remove the need for paper bills as all payments could be made by people electronically. It would eliminate any incentive for counterfeiters to make fake notes, which is not a problem today since banknotes are rarely used.
Digital Yuan can help boost the economy:
One of China’s major challenges is transitioning from a manufacturing-based economy to one in which its increasingly affluent population can consume more goods and services. By allowing individuals and businesses to invest directly, China could transition into an economy that relies on consumption rather than production. As a result, it should positively impact the country’s economic growth.