As technology continues to advance and phase itself into many aspects of our lives, the discussion of digital currencies being used by central governments has been brought to the table time and time again. With countries like China already deciding to implement a digital currency through their central government, pressure has been brought on to other large forces of the global financial sector as to whether or not they will do the same.
Since 2014, China has been working on developing a national digital currency and its efforts are now coming to fruition. With the People’s Bank of China promoting the so-called central bank digital currency (CBDC), they plan to use it as a way to replace some of the cash currently in circulation. As it may seem like money is already virtual with credit cards and payment apps like Apple pay in the U.S. and Alipay and WeChat Pay in China, these are only ways to move money electronically. With this digital currency, officially being called the Digital Currency Electronic Payment (DCEP), China is essentially turning legal money into computer code.
Mu Changchun, who is leading the project at the People’s Bank of China expressed that, “In order to protect our currency sovereignty and legal currency status, we have to plan ahead.” By implementing a digital currency within their financial system, the country has found a way to deal with its pressing issue of the costs that come with producing and storing cash and coin. Another benefit that comes along with digitizing their monetary system is that the digital yuan could help with financial stability through “controllable anonymity.” This would allow for payments to be anonymous to a certain degree but there would be data analysis tools that could enable the central bank to catch illegal activities.
With China being the first major economy to create its own digital currency, other key players in the global economy are forced to establish whether or not they will follow in their lead. According to the CBDC Tracker, more than 60 countries are at some stage of studying or developing a digital currency. As for the United States and Japan (the first and third-largest economies in the world), both are only at the researching stage of their development which places them well behind countries like China and the Bahamas who have both already begun testing their digital currencies within their economies. However, when asked whether the dollar could be digitized in order to help the U.S. maintain its supremacy, the Federal Reserve’s Chairman Jerome Powell, said that researching that question is a “very high-priority project” and that, “We don’t need to be the first, we need to get it right.”
Ultimately, China becoming the first major economy with its own digital currency forces other dominant economies to reconsider their stances in relation to developing digital currencies of their own. Whether or not these countries believe a digital currency should be implemented within their central government, one thing stands true: globalization is happening at a rapid pace and it is doing so through the means of technology.