After completing the internal testing, Xu from Peking University’s Digital Finance Research Center said that the digital yuan could eventually be extended to pay staff salaries in major government agencies, administrative institutions, and even state-owned enterprises.
Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, said the key challenge, however, with the potential success of digital currencies at the central bank, would be that they could disrupt the existing structure of conventional banking business of taking deposits and use the funds to expand credit.
He said that individuals and businesses that are increasingly using central bank digital wallets to make payments will have less need to deal with commercial banks that can lead to the disappearance of bank deposits, thus crimping the ability of commercial lenders to expand loans.
Xu said the need for ATMs in the future will also be challenged as China transforms into a cashless society, and entire financial facilities and business types will undergo major changes. It is also predicted that young people, more familiar with the use of mobile devices, will take the lead in using the digital yuan.
The digital yuan growth may be similar to the evolution of Yu’e Bao, one of the world’s top money market funds distributed on the payment network of Ant Financial, Xu said. In the future, users will be given the option to make interest-bearing deposits using digital yuan and invest in wealth-management products.
According to eToro analyst Nemo Qin, recent developments are unlikely to have an impact on crypto assets in the long term because the issuance of a digital yuan will be strictly regulated without public mining or trading with existing cryptos.
“Unlike most crypto-assets, the DCEP would be a centralized, government-issued digital currency … [W]with these considerations, the DCEP should not have a direct effect on the crypto-asset market,” said Qin.
The price of the largest asset of crypto, Bitcoin (BTC), increased by more than 40 percent, from $7,435 to $10,350 in October 2019, after Chinese President Xi Jinping said that his nation should “seize the opportunities” created by blockchain technology.