And from the folks who brought you paper money...

What is China doing with its digital yuan? Explained by the Big Red Car, a huge fan of China. Haha. Not really.

And from the folks who brought you paper money...

Capital Thinking · Issue #832 · View online

China recently announced the creation of a digital currency to which the world and the crypto world reacted with a number of different reactions.

Let’s discuss some of the finer points here, shall we?

-Jeff Minch

Chinese Digital Yuan V Digital Renmibi

Jeff Minch | The Musings of The Big Red Car:

BTW, did you know that China invented paper money? All money used to be gold, silver before the invention of paper money.

Mobile payments in China

This discussion is entwined with the issue of mobile payments, so it is important to know the following:79% of all payments in China were mobile payments (smartphones) in 2020 — Alipay controls 54% of market whilst WeChatPay controls 40%.

China is approaching a cashless society with cash and credit cards not being accepted by many merchants. What they do use is mobile payments.

31% of all payments in the United States are mobile payments

22% in Germany

It is important to recognize that China is far ahead of the rest of the world in the arena of mobile payments and this figures prominently in their embrace of a digital yuan. Remember this fact.

Mobile payment apps in China

In December 2020, there were 852.5 mobile payment app users in China. In 2020, more than $40T in payments were mobile payments.

Mobile payments typically involve a QR code in the merchant’s space which represents the applicable payment app (such as Alipay or WeChatPay) and a smartphone which contains the customer’s money in the customer’s bank. It is very simple.

Scan the QR code, verify the merchant and the invoice, identify the amount to pay, hit a button to make the payment — voila!

Your Big Red Car believes this high level of mobile payments is a look into the future in the United States. In many ways, the US is using the credit card system to provide the same function.

What exactly is a digital yuan, Big Red Car?

Great question. A digital yuan is simply the replacement of a paper yuan with a bit of code, digital wizardry in an account controlled by the government.

The Chinese Central Bank tells us that if they had 100 paper yuan and wanted to issue 10 digital yuan, they would cancel 10 paper yuan and arrive at 90 paper yuan and 10 digital yuan.There would be no digital printing press in the basement.

Do you believe them?

How would the digital yuan transact business, Big Red Car?

The Chinese assure us that it would transact business exactly as the paper yuan. Remember that China is a very advanced digital payment society as it exists right now.

After you scan the QR code instead of paying with your bank account using a mobile payment app, you would pay with the digital yuan which would be in a government account.

Que the ominous dark music, amigos, a GOVERNMENT ACCOUNT. A Communist Chinese government account! Why would China want a digital yuan, Big Red Car?

Ahhh, it’s China, amigos.

It is all about exerting control.

You have to know about the Chinese Social Credit System. You can read a little about it here:Communist China at 70 — A Bill of Particulars

1. What Communist China would obtain with a digital yuan is more control of their people and the ability to control their money. They could ultimately control payments completely. They could freeze an account.

Whilst cryptocurrency devotees will look at China and applaud their advanced use of crypto — in my view it really isn’t crypto — freedom advocates will see it as another knot in the noose around the neck of the individual Chinese citizen.

The Commies will literally be able to see every purchase made with the digital yuan.

2. The Chinese have this fantasy that the digital yuan would somehow supplant the US Dollar as the world’s reserve currency.

To put that into perspective 88% of all foreign transactions (current Bank of Int’l Settlements data) are settled with the USD while the yuan accounts for 4% with all of those transactions between China and close partner countries like Iran.

3. The Chinese also see this as avoiding the US banking system and therefore as a way to defeat American government financial sanctions.

If a sanction against Iran says no American bank can transact business involving Iran and the Chinese digital yuan can be used, it effectively circumvents the sanction.

Keep Reading =>

Chinese Digital Yuan v Digital Renmibi
China recently announced the creation of a digital currency to which the world and the crypto world reacted with a number of different reactions. Let’s discuss

Photo credit: 1AmFcS on Unsplash