Chat with us, powered by LiveChat

China Plans To Put An Expiry Date on Digital Yuan

Derek Wolfe

Updated: December 13, 2022

digital yuan expiry
Editor’s Note:

EDITOR'S NOTE: Similar to the digital dollar article we curated last week, the Chinese digital yuan will also have an expiry date. Spend it before it expires or, like any commodity that spoils, it will be worth nothing. This is exactly the kind of tool that a government needs to control the distribution and velocity of money. It’s the mechanism to control how or when people might spend or save. This type of scenario is exactly what opponents of digital currency are warning against—one in which you become a cog in the wheel of a larger fiscal and monetary mechanism. Simply put, your financial privacy and transactional freedom will be lost. And if you haven’t already noticed, this dystopian scenario is just months away from launching. Fortunately, there are only a handful of ways out of this oppressive economic prison.

China's digital yuan is programmable to have an expiry date, which gives its central bank to effectively and boost consumption demand or impose negative rates as required.

The Keynesian dream to boost the velocity of money may finally come true.

China is exploring expiration dates with its upcoming digital yuan, or DCEP, which means the currency will expire if not used in a certain timeframe.

The digital yuan is programmable to the point that the currency can be made to expire, thus forcing consumers to use it up by a certain date. This is a twist on an obscure, unconventional monetary policy innovation known as a Gesell currency: expiring money, which gives the issuing government a heightened degree of control over money velocity.

What's DCEP?

DCEP is the digital version of the yuan, China’s physical currency. As such DCEP is the legal tender of the country, being issued by the central bank and parts of its liabilities. In a centralised system, the PBoC would issue DCEP to commercial banks against equivalent cash or banks’ deposits at the central bank. Commercial banks would then distribute DCEP to their clients, assuming client facing interactions including Know Your Customer (KYC) due diligence. The PBoC can allow other intermediaries which can fulfill the same requirements to distribute its DCEP.

DCEP as a digital unit resides in digital wallets, whose app will be authorised by the PBoC and can be downloaded by users -— it is still unclear whether downloading the app would require formal registration. It has been claimed that DCEP can be transmitted directly from wallets to wallets independent of banks or any other intermediaries via the Internet or phone connections, or absent those connections, by putting two mobile phones close together—probably using near field communication protocols.

The reason for expiry

Programmable money, tied to real-world identities, and universally tracked by a central bank, is like a substitute for the consumer of last resort. Every year that China gets richer, domestic consumption plays a bigger role (exports were 26% of China's GDP in 2010, and 18% last year). If domestic consumption can be tightly controlled, then it's a way to not just increase the volume of consumption but to control the variance of demand for the goods China produces.

Features of the Chinese digital currency

The digital yuan does not live on a public ledger. It is controlled centrally by authorities, to be changed if, as, and when political whims require such.

The DCEP is not a peer-to-peer currency but rather requires the use of officially regulated financial intermediation.

It does not have a market-based valuation independent of the old version of the currency. They are tied together.

The digital yuan does not have an algorithmic protocol dictating the production of new assets (akin to money creation), much less an end date at which point no more will be created. It is a currency with a discretionary money supply controlled by the government.

The digital Yuan permits a new method for surveilling the population, creating new data which can be tracked by authorities. Bitcoin has pseudonymous protections for user privacy.

Shenzhen case study

In October of 2020, China became the first nation to hold a trial run of its digital currency, when the government in Shenzhen carried out a lottery to give away a total of 10 million yuan (about $1.5 million) worth of the digital currency (nearly 2 million people applied and 50,000 people actually "won").

The winners were required to download a digital Renminbi app in order to receive a "red packet" worth 200 digital yuan ($30), which they can then spend at over 3,000 designated retailers in Shenzhen’s Luohu district, according to China Daily. After that, they’ll be able to buy goods from local pharmacies, supermarkets and even Walmart.

The idea was to not only test the technology involved, but boost consumer spending in the wake of the COVID-19 pandemic. In short, China is not only subsidizing the centrally-planned economy by manipulating the supply-side of the question- it now can prop up demand by handing out digital currency to anyone.

Follow and connect with us on TwitterFacebookLinkedinYoutube.
 
Originally published on BFSI.

No Investment Advice

GSI Exchange is a publisher and precious metals retailer. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You understand that the Content on the Site is provided for information purposes only, and none of the information contained on the Site constitutes an offer, solicitation or recommendation to buy or sell a security. You understand that the GSI Exchange receives neither monetary or securities compensation for our services. GSI stands to benefit from the sell of retail cost precious metals on this site. To avoid hidden costs all prices are listed live 24/7 on this site. Read the full disclaimer

GSI Exchange Infokit - evergreen

GET YOUR FREE

GOLD SILVER INFO KIT

Precious Metals and Currency Data Powered by nFusion Solutions