China Looks to Make ASEAN Digital Yuan Move – CBDC ‘Breakthrough’ Imminent?

The introduction and evolution of blockchain technology and crypto have further spurred interest in digital currencies and cashless societies. With a significant chunk of the world’s population still unbanked, digital currencies are a way for businesses and individuals to access financial security and accessibility. With nations like Grenada and Nigeria having already established central bank digital currencies, China looks set to follow suit and boost the digital yuan with the Southeast Asian region.

What Are CBDCs?

CBDCs stand for Central Bank Digital Currency and are a form of digital currency issued by a nation’s central bank. While the idea for CBDCs stems from blockchain technology and cryptocurrencies, CBDCs aren’t crypto. Cryptocurrencies are decentralised and operate on the blockchain via a consensus mechanism. On the other hand, CBDCs are controlled by a central bank. The primary objective of CBDCs is to let consumers and businesses access convenience, transferability and financial security. It also aims to reduce the cost of maintaining complex fiat-based financial systems. Furthermore, it can reduce the risks associated with using cryptocurrencies in their present volatile form. 

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The Evolution of the Digital Yuan

In recent years, the Chinese government has faced significant pressure from the US government and its overpowering influence on the world economy. Due to fear of being targeted with economic sanctions, the Chinese government focused on innovating its own digital currency. The Chinese government formally announced its digital currency research program, subsequently beginning e-yuan trials in 2019. This DCEP (Digital Currency Electronic Payment) scheme successfully expanded to 28 major cities in August 202. Since then, China has tested the e-yuan in more cities, including Shanghai and Beijing, with the aim of broader circulation in subsequent years. 

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The DCEP and Cross-Border Adoption

Although it started as a purely nationalist digital currency scheme, China has recently pushed for adopting the digital yuan in ASEAN (Association of Southeast Asian Nations). The country seeks to make cross-regional use of its CBDC across its geographical bloc. The reason for this is to foster free trade-related developments aimed at boosting ASEAN-China cooperation. As many ASEAN members are politically aligned with China, there is hope for an imminent negotiation breakthrough. 

Potential Obstacles

The primary obstacle to achieving China’s ambitious goal with the digital yuan is that a number of ASEAN members still have strong ties to Washington. The US is bound to frown on economic moves that could strengthen China’s position in Asia. Despite this, the move to adopt the digital yuan in free trade across Southeast Asia is on the verge of success. This is primarily linked to the slowing-growing trend of de-dollarisation. Many of the world’s developing nations are looking to adopt other currencies for trade. And many ASEAN members, including Malaysia, Cambodia, Indonesia, and the Philippines, have taken significant steps. 

Conclusion

China has become the first major economy in the world to develop its own CBDC. Thanks to early research and a systematic easing into the monetary system, the digital yuan has gained significant traction within the country. Having moved to have the ASEAN community adopt its CBDC for regional trade, the Chinese economy will only grow in the coming years. Next, there will be another interesting crypto topic here:https://player.me/singapores-new-president-has-called-crypto-slightly-crazy/

Frequently Asked Questions

What Impact Can the DCEP Have on China?

The DCEP can have significant ramifications for China with regard to the efficient monitoring of transitions. With it, the Chinese government can create a massive database of centrally governed financial transactions. Furthermore, China will be capable of monitoring changing economic trends in the global economy. This will let it focus production capacity on the apt goods and services, giving it a significant advantage over other countries. Additionally, China will be able to correct irregularities and watch for criminal activities for fraud prevention. 

How Did China Launch the DCEP?

To realise its ambition of a CBDC, the PBoC (People’s Bank of China) conducted several large-scale trials. They also included massive stimulus package disbursements in many cities. These cities include Shenzhen, Chengdu, Xiong’an New Area, Beijing and China. Furthermore, they involved multinational and national retailers like Baozi, Quingfeng, Starbucks and Subway. The implementation of DCEP was phased and focused primarily on thriving international trade and business financial hubs. 

What Is the Difference Between Cryptocurrency and CBDC?

The major difference between crypto and CBDCs is the overall governance that determines its distribution and, subsequently, its demand and supply. CBDCs, as their name implies, are highly centralised and monitored by a central bank. The central bank controls its supply by using expansionary or contractionary policies. On the other hand, cryptocurrency opposes the monetary policy function of fiat currency. As such, they are decentralised, with their supply and demand determined by various factors, making them a highly volatile asset class.