By some accounts ancient China is the birthplace of currency. Around 770 BCE people there started
exchanging coins for goods and services, though rather than the familiar round minted shape
we’re used to today, these “coins” were cast in the shape of shells, or miniatures
of common tools like spades or knives. So, it might be fitting that the first country
that could abandon physical money in favor of digital legal tender is China again. How
will it work, what are the pros and cons, how is it different from cryptocurrency, and
what does this mean for the rest of the cash-using world? Part of the reason China has taken
the lead creating a state-backed digital currency is because they initially lacked the credit-card
based payment infrastructure of other countries, like the U.S. So, tech companies like Tencent
and Alibaba developed apps that let people exchange money digitally with their phones.
The apps have proven extremely successful, with hundreds of millions of Chinese citizens
using them regularly. Six years ago, China’s central bank saw the upsides of developing
their own digital yuan. As of April 2020, the program is being taken for a test run
in four Chinese cities. The details on how the currency actually works aren’t very
well known, but a few things are clear. The digital yuan is tied to the value of the normal,
physical yuan. Since it’s state backed, that means the
government is liable for it and it should be stable, compared to cryptocurrencies like
Bitcoin, where the value can swing wildly. And because it’s backed by the state, that
means it’ll be more widely accepted. Already, nineteen companies including McDonald’s
and Subway are participating in the trial. A major roadblock to the adoption of cryptocurrencies
has been their lack of government recognition and widespread acceptance. But cryptocurrencies
do have some benefits that China’s officially sanctioned ebucks lack, especially when it
comes to privacy. A huge appeal of bitcoin and others like it
is the blockchain, an encrypted and decentralized ledger tracking where the money goes. While
the blockchain is public, anybody using it can remain anonymous.
But if China’s central bank develops and distributes the currency, then they can see
exactly who is involved in every transaction. China has a notorious history of being a surveillance
state, and this could be another avenue to continue their monitoring methods. All of
these advantages and disadvantages to each approach have left the future of digital currency
up in the air, and it’s anybody’s guess what’ll happen next. Will the digital yuan
spread globally because of its convenience and stability, or will the rest of the world
opt out of handing their financial data over to China? Will the U.S. government attempt
to digitize their own dollar? Nobody really knows the answer to any of these
questions yet, but fortunes will be won and lost as we find out. I’m no financial guru
but I will make this prediction: while a digital currency seems all but inevitable, not everyone
will have access to the technology to use it, and others will still prefer old-fashioned
physical money. Even if digital currency becomes widespread soon, cold hard cash isn’t going
to vanish. At least, not right away.
If you're curious about encryption, check out this video I did on prime numbers.
So what would it take for you to use a digital currency?
Let us know in the comments below and make sure to subscribe. Thanks for watching
and I’ll see you next time.