Context:
The news came out that ‘China will be the first country to completely digitalize its currency’. This came out after China’s central bank ‘The Peoples Bank of China’ gave a statement about its digital currency in its 4 major cities Shenzhen, Suzhou, Chengdu, and Xiong’an. McDonald’s and a few major firms gave a nod to participate in trials with the Chinese government. This article explains all the aspects of the digital currency trails of China.
Q: WHAT IS A DIGITAL CURRENCY
Digital currency is nothing but what we are already doing in India. Many of us have been using Phonepe, Google pays for transactions. However, China don’t want any paper currency to be printed in the near future and completely digitalize its money.
Q: HOW CAN THIS HAPPEN
Agriculture Bank of China is first to support this trail. So, people who have paper currency with them have to give it to the bank and in return, the banks give them access to an app and a Sim card like a chip. The app is for local transactions and the chip-based card is for transactions in retail shops.
Q: WHAT IS THE DIFFERENCE BETWEEN PHONE PE, GOOGLE PAY & CHINA DIGITAL CURRENCY
The transaction we do is through apps that connect to a third-party bank. The money we send through the apps is first sent to the mediating bank and then to the beneficiary bank account. The below example explains its well.
For understanding China, digital currency lets take a practical example. I am Krishna who has an app given by the Chinese bank. I can see the balance in my account. But, now I want to transfer it to Satya. If this is the case in India, I will open my Google pay enter my UPI code and then send the amount. But, in China’s digital currency, the app will not have any password. Both the app users should initiate a transaction using a QR code. The bank will then send a temporary OTP like the password to both of them. When both persons enter the correct OTP then the bank will initiate the transaction without any intermediate third-parties.
Q: HOW WILL THIS HELP CHINA
China believes that this will reduce the manufacturing burden of paper currency and there will be transparency in the transactions as every transaction will be initiated by the account holders bank. This would reduce money laundering, corruption. Any transaction that is made for illegal use can be traced faster than before. Third-party apps can be vulnerable o get hacked. But, China’s digital currency can’t be hacked as there is no password or any security code with the user. This could be an added advantage.
Q: IS CHINA THE FIRST COUNTRY TO DO SO
China will be the first country if it completely digitalizes currency. But, India, the USA, Australia, and many countries are already doing the app-based transactions but besides it, we are also using paper currency.
Q: DRAWBACKS
Like we use Amazon pay, Google pay, Phone pe for money transactions, China uses Alipay, WeChat for transferring money. So, the demand for these apps may get down. The privacy of the account holder will now be completely into the hands of the government when the currency is digitalized. But, as China is a communist country this may not be a major concern.
-KRISHNA (Frontlines Media)
