During the 2022 Winter Olympic Games in Beijing, China unveiled its new digital yuan.
China has been a strong advocate against cryptocurrency ownership, previously banning the holding of cryptocurrency as well as Bitcoin mining. But at the recent Winter Olympic Games, China debuted its first central bank digital currency. A central bank digital currency is a form of digital asset that is solely controlled by a financial institution, such as a bank. This is not the same as digital assets like Bitcoin as a central bank digital currency is by virtue centralised, meaning that the central bank can limit the supply and issue it to whomever it deems.
Albeit centralised, the Chinese digital yuan is a great step in China’s recognition of the digital asset class. The digital yuan has been trialled since late 2019 and was even introduced to competing athletes for use in the Olympic Village. Many Chinese politicians actually support blockchain technology but are hesitant about retail cryptocurrency. As such, the digital yuan can be segregated into an institutional and retail level, whereby the central bank may issue a different type of digital yuan to financial institutions. The digital yuan is also designed to subvert US sanctions, prevent illicit money flows, enhance China’s surveillance, and provide Beijing with a first-mover advantage of cross-border digital payments.
Other countries around the world have been researching and designing their own central bank digital currencies. It is likely that we will soon see countries such as the US, UK, Canada, Mexico, Norway, Germany, Australia, and the Philippines complete their research into central bank digital currencies and potentially implement them nationally.
Central bank digital currencies may not be the solution that cryptocurrency investors may be looking for but without institutional investment, it is very difficult to authenticate the digital asset class. However, with issues over centralisation, financial instability, and privacy, the reality of central bank digital currencies may still be far off.