China has many plans for the coming year. The country might introduce the breakout fintech innovation of the year 2020. The global first digital sovereign currency could also debut. This is expected to happen in the city of Beijing.
The first roll out appears cautious. It is entirely based on the consumer spending. The new technology is supposed to be deployed in the Chinese banking system. This could be the disruptive next step.
The Digital Versions Of Money
In 2019, the Bank of International Settlements carried out a survey. The study discovered something about the leading monetary authorities in the world. 70% of these authorities are studying their own online money versions.
The People’s Bank of China is one of them. It is expected to launch its own very soon. This move is informed by the bank’s worry about private alternatives such as Bitcoin and Libra by Facebook.
Details About The Proposed E-Yuan
The details about this new development are still very scarce. But there was a hint that was given back in November by Mu Changchun. He is one of the senior officials at the People’s Bank of China. Mu Changchun heads the digital research institute of the bank.
He earlier hinted that the e-yuan would be distributed through commercial banks, and Tencent. It will also be distributed through Alibaba-backed Ant Financial, which are the leading online payments giants. But if there are people who will hardly notice the difference, then there are mobile wallet users.
Tracking And Monitoring Online Spending Flows
The system has an underlying distributed ledger technology. This is basically a shared database, which is synchronized constantly by a group of computers. This will offer the authorities an unprecedented opportunity to track and monitor online spending flows.
This could greatly help the watchdogs in the market. It will help against tax evasion, fraud, as well as money laundering.
Solving China’s Biggest Problem
Use of the digital currency in a wide financial market would create many positive changes. It would make interbank settlements more secure and efficient. This new system could also lift up the efforts of cleaning up 2.4 trillion Yuan. This translates to about $341 billion.
China has one big problem, though. Widespread, but illegal practice of pledging the same asset as collateral for various loans. This problem could just be detected by distributed ledgers. This is much better than the use of traditional database commonly used in other sectors.
There are other local businesses still using the discounted banker’s acceptance notes. They work as cash-in-kind. Digitizing these types of paper works would greatly help in the market. With this, fraud risk would be a thing of the past.