China, which gave the world its first paper money, recently introduced the world's first official digital...

China, which gave the world its first paper money, recently introduced the world's first official digital currency. What are your thoughts on what will be the impact of this digital currency in the world? Can this Chinese digital currency pose challenge to the supremacy of US Dollar? How does this Chinese digital currency differentiate from other digital currencies such as Bit-coin?

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Expert Solution

Impact of this digital currency on the world will be introduction of more such mechanisms to initiate trade as US and other global countries will also try to control the market and come in with other variants which are much more efficient. But for now dollar is still the most traded currency and preferred one globally.

US dollar is preferred globally because of its transparency and its ability to hold value because the Fed is transparent in its mechanism. This is not the case for the chinese digital currency as it has several limitations in terms of usage such as capital controls and limitations on foreign holdings. These all characteristics and less transparency of the central Bank of China will reduce the chances of it posing a huge risk on the supremacy of the dollar.

China's digital currency is just an electronic version of the Yuan and is similar in some characteristics to Paypal and other variants, wherein one links the bank account and one can transfer money. China's digital currency can also be used for transactions instead of tangible cash currency. It varies a great deal from Bitcoin which is a virtual currency and there is no central bank involved in this which increases the risk.

Rahul Sunny answered 1 year ago

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