The rise of digital currencies, and the decline in cash, has been a hot talking point for some time now, and with the Covid-19 pandemic forcing us to shop online much more, the world is seeing a dramatic shift in the way we pay for goods.
China has been at the forefront of such currencies since 2016, with its e-Yuan poised to partly replace cash in circulation. The second trial of the currency is now underway: 100,000 citizens in the Shenzen province are set to receive 200 of the units ($31) in an effort to make the coin the first sovereign digital currency in the world.
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How will the second trial work?
1.9 million have people have applied to receive the e-Yuan, but only around 5% get to use it. Still, the experiment is double the size of the first trial in December, which was a success and a launchpad for this offering. The government have chosen the winners via a lottery system, which applicants enter for free rather than pay for a ticket like in regular lottery draws, and each of them will receive a voucher in a red envelope – a traditional way to receive gifts. They then have to use it via the e-Yuan app in selected stores in the city’s Futian district before the deadline of January 17th.
The Chinese government hope this second trial will cement the e-Yuan as a frontrunner in national digital currencies, and it could signal the first major step towards a cashless Chinese society. The People’s Bank of China hopes the digital currency will provide citizens with a more secure and convenient means of payment.
The growth of the e-Yuan in 2021 and beyond
With such strong support from the authorities, 2021 looks like the year where the e-Yuan will gain a foothold in the national currency system.
Its growth will stem from the Chinese government’s need for control. For a while now, officials have worried about the power of the country’s big tech platforms usurping the Central Bank. The rise in mobile payments means that traditional Yuan is being squeezed out, so a digital Yuan will allow them to gain more influence.
Other factors that point to a rise in e-Yuan in the mid- to long-term is its capacity for transferring money across borders without relying on SWIFT, a payments system influenced greatly by the US government.
Yet the key is patience. China knows that the new currency is nothing without the people’s approval, hence the series of trials. Physical money, after all, took thousands of years to become an accepted means of exchange. While digital currency certainly won’t take that long, it’s still prudent for the nation to be cautious and see how the tests go.
Other national digital currencies
Inspired by Bitcoin and other blockchain-based cryptocurrencies, several nations have edged towards the release of a digital currency in recent years. Perhaps the earliest example was a pilot retail scheme in Ecuador in 2014, where the central bank allowed users to use their mobile phones to buy products with a special e-coin. The project was shelved after an unpopular reaction, however.
Since then, Sweden’s e-krona has hit the headlines, with the government testing a proof of concept, a type of practical test, in 2020. On a much larger level, the Eurozone moved closer to a digital euro by launching a phase of experiments that assess the merits of such a coin to go alongside the fiat euro: they expect to reach a decision whether to continue the plans in mid-2021.
Outside of sovereign states, Facebook’s Libra is perhaps the most famous proposed digital currency, and one that could have the power of a national coin. In November 2020, the company announced an imminent launch of a coin backed one-for-one by the US dollar. The Libra has come under fire, however, for its close ties to the social media company – a hotly controversial entity in itself in recent years.
Despite these other advances, it’s the e-Yuan that is currently leading the way in terms of national e-coins, and it will give us the clearest signs of how close we are to virtual currencies challenging, or even replacing, their traditional versions.
A crypto future
The need for such currencies, of course, has been triggered by the incredible success of crypto. After being the subject of much scepticism, these decentralized digital coins are gradually being seen as a threat to the very existence of physical, or fiat, currencies.
The most famous, and original, is Bitcoin, of course. Satoshi Nakamoto’s brainchild has steadily increased in value since 2008, albeit with major fluctuations along the way, and has led to industry experts predicting its long-term success as a viable unit of exchange. Other cryptocurrencies, or altcoins, are following in its wake, with the likes of Ethereum and even a Dogecoin – based on the famous internet meme – enjoying recent success.
The soaring value of these online currencies suggests the future lies away from conventional cash and it’s looking like a matter of when, and not if, many more countries other than China jump on board the crypto train.