The recent official disclosure of China's progress in digital currency has sparked widespread public interest. Currently, the digital yuan is undergoing internal closed pilot tests in Shenzhen, Suzhou, Xiong'an, Chengdu, and future Winter Olympics scenarios to continuously optimize and improve its functionality. Guo Xiaobei, an industrial development researcher at the China Minsheng Bank Research Institute, stated in an interview with China Trade News that if the digital yuan is promoted in the future, it will be highly beneficial for the foreign trade industry. Currently, most enterprises in the foreign trade sector use foreign exchange for transfers, which are slow and involve high handling fees. Adopting Digital Currency Electronic Payment (DC/EP) could enable rapid fund transfers, reduce costs for businesses, and address numerous challenges in cross-border payments.
Advantages of Digital Currency in Trade
Guo Xiaobei explained that compared to traditional currency, the digital yuan does not require physical materials for production, significantly reducing issuance costs related to labor, equipment, and space. With the increasing prevalence of mobile payments in China, the use of cash has declined considerably. The issuance, printing, recycling, storage, and anti-counterfeiting processes for banknotes and coins incur high costs, all of which can be lowered with DC/EP. By adopting electronic record-keeping, many cumbersome steps in physical currency transactions could be eliminated, greatly enhancing convenience. While meeting the public's need for anonymous payments, DC/EP may also contribute to reshaping the international trade settlement system and promoting the internationalization of the yuan.
Enhanced Regulation and Security
Given its technical uniqueness, Guo believes that the digital yuan holds advantages over physical currency in strengthening monetary management and preventing money laundering risks. She noted that existing M0 (banknotes and coins) are prone to anonymous counterfeiting and carry risks of being used for money laundering and terrorist financing. While these risks persist with DC/EP, regulatory challenges are relatively reduced compared to physical currency. Through specific algorithms, each digital currency can be tagged with a unique identifier, similar to a code, recording information such as the owner's account and transaction history. Financial institutions, acting as custodians, can hold "private keys" to审查 digital currency holders at any time.
Global Trends and Technological Features
Beyond China's internal testing of digital currency, global developments in this area have been flourishing in recent years. Thanks to the traceability features of underlying blockchain technology, digital currency payments make it easy to track the flow of every transaction and establish a unified national ledger, which could deal a fatal blow to criminal activities like money laundering and tax evasion. Based on the technical characteristics of blockchain, digital currency offers advantages such as decentralization and anonymity. Peer-to-peer transactions ensure secure and transparent payments while further improving transaction speed. Additionally, digital currency payments can reduce cross-border transaction costs and accelerate capital flow, thereby fostering global cross-border trade development to some extent. However, Guo also cautioned that digital currency trading carries risks, as it lacks stable value and experiences剧烈 price fluctuations.
Impact on Cross-Border Payments
Despite these risks, Guo observed that digital currencies, represented by Bitcoin, have begun to play an increasingly important role in cross-border payment activities in recent years, making a restructuring of the global cross-border payment system possible. Users can exchange their local legal tender for digital currency via sales terminals or online interfaces domestically, store it in a digital wallet, and then securely transmit it across borders to the recipient's digital wallet overseas, where it can be converted into the local legal currency in the same manner. Since digital currencies are typically tokens based on distributed ledger technology, this technology ensures that transactions are traceable and不易篡改. More importantly, the decentralized transaction模式 it supports greatly enhances the efficiency of cross-border payments, reducing transaction time from the traditional 3–5 days to within a single day and lowering transaction fees from approximately 7.21% in traditional systems to less than 1%.
Challenges and Regulatory Considerations
However, the regulatory challenges posed by digital currencies in international cross-border payment activities are also increasing. As digital currency cross-border flows often bypass traditional payment systems, they complicate foreign exchange controls and capital flow management. Furthermore, digital currencies, which employ encryption technology, peer-to-peer transaction models, and offer extreme convenience in cross-border transfers, could become significant channels for tax evasion and avoidance.
Guo Xiaobei remarked that the internal testing of digital currency by the People's Bank of China indicates that China's digital currency, poised to overcome these challenges, is already on the horizon.
Frequently Asked Questions
What is Digital Currency Electronic Payment (DC/EP)?
DC/EP is a digital form of legal tender that aims to replace some of the cash in circulation. It is designed for electronic payments, offering faster transactions and lower costs compared to traditional banking methods.
How can digital currency benefit foreign trade?
It enables rapid cross-border transfers, reduces transaction fees, minimizes handling costs, and enhances transparency. These improvements can streamline international trade operations and support the broader adoption of currency internationalization.
What are the risks associated with using digital currencies?
Digital currencies can be volatile, with values fluctuating significantly. They also pose regulatory challenges, such as potential use in money laundering or tax evasion, though technological features like traceability may aid in mitigation.
How does digital currency enhance security and regulation?
Through blockchain technology, each transaction is recorded on a decentralized ledger, making it traceable and tamper-resistant. Financial institutions can monitor activities via private keys, improving oversight compared to physical cash.
Can digital currency help in preventing financial crimes?
Yes, the traceability of digital transactions allows for better monitoring and reduces anonymity in financial activities, making it harder to engage in practices like money laundering or fraud undetected.
What is the current status of China's digital currency?
China is conducting pilot tests in selected cities and scenarios, aiming to refine the technology and implementation strategies before a potential broader rollout. 👉 Explore more strategies for digital finance adoption