Digital Yuan - Two Aspects

China Monthly Fact
December 28, 2021

For our final post on China this year, we would like to illustrate two developments in connexion with the implementation of the e-yuan by the People's Bank of China as this topic is currently widely debated.

Today, as inflation tendencies reappear, the debate on central bank policies such as quantitative easing, having an impact on the whole economy, are brought to the fore. In such context, the wide use of a digital currency in China will enable the analysis of data to identify areas, sectors or activities in difficulty and to apply targeted economic policies. This would allow the central bank and government to invigorate economic activities in targeted zones, having thereby a local impact and avoiding unwanted repercussions on the whole economic system, which would be the case with broad macro-economic policies.

Secondly, the use of a digitalcurrency in the retail business would mostly bypass business models such as credit card services and therefore lower the fees per transaction as well. This would be a potentially favourable development for consumers, as the money is directly transferred from the central bank, thereby avoiding any intermediary.

Both options have advantages and drawbacks. The purpose of this post is to deliver a short outlook on what might be expected in the future.

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