Will China be the first modern country to go cash-free, continuing its lead in Fintech? That may be the case, as the People’s Bank of China works to digitize the Renminbi to help decrease financial crime and prop up the currency in cross-border trade. This exploration into creating a national digital currency is part of China’s current 5-year plan.
At the moment, it is testing out Ethereum ERC 20 tokens for the new digital RMB. Trials for the new currency have been done, and the PBOC says it will launch in the near future. According to the bank’s governor, Zhou Xiaochuan, the shift from paper to digital money won’t happen overnight, but gradually. Once launched, the PBOC will become one of the first major central banks to issue digital currency.
China first embarked upon this journey in 2014, quickly realizing the blockchain’s benefits and potential for economic growth. But greater control is perhaps its biggest motive behind the shift. As Chinese regulators watch the increasing use of bitcoin and other digital currencies, they become increasingly uneasy over their loss of power to track people’s money and thwart tax evasion.
That uneasiness may also be weighted in the fact that RMB exchanges accounted for almost 98% of all Bitcoin transactions globally in the last 6 months.
Besides greater regulatory control, the digital RMB will also help China eliminate the cost of printing money and reduce the rising cost of fighting counterfeiters and money launderers. It will also help meet the demand for faster, cheaper, payments, skyrocketing due to China’s mainstream use of smart phones. Mobile payments and other online payments in 2015 grew 53 percent from the previous year, totaling 2172.6 trillion RMB (USD 315.69 trillion).
So, how will these big changes affect the lives of everyday Chinese people? Well, it may come as a surprise, but probably not much. The Chinese have already gotten warmed up to the idea of living cash-free so this will not be that big a leap for China. This ‘new normal’ is due to the QR code’s explosion there. Simply scanning goods with a mobile device and walking out with them has become second nature.
If other countries do not take the initiative China has, they will continue to lag behind China. Larry Cao, thought-leader for Asia and content director at the CFA Institute in Hong Kong, commented on the shift, saying, “There’s a potential you can pay anybody in the system, any bank, and any merchant directly. Blockchain will change the whole infrastructure. This is revolutionary.”