In the hands of an authoritarian government, a digital currency also offers unprecedented surveillance and control. Chinese officials have said DCEP offers 'controllable anonymity' - meaning payments could be anonymous to companies and other users but not to the government.But DCEP would be managed directly by China's central bank, the People's Bank of China (PBOC). вЂњWhoever grasps this advanced productive capability will possess the strongest core competitiveness in finance.'Д«ackground: Cryptocurrencies like Bitcoin and Ethereum exist on a decentralized ledger and are intended to skirt controls by governments or companies. вЂњFintech is the commanding heights of future global financial competition,' Chinese central bank vice-governor Fan Yifei said in November 2019.Chinese officials have made it clear that they view the digital currency as a key staging ground for global geopolitical competition, according to a January report by Yaya Fanusie and Emily Jin of the Center for a New American Security. A state-backed digital currency could potentially provide a host of new opportunities for businesses, tech companies, and trade.Д«ut it isn't just about efficiency and innovation. A government alternative would provide a layer of security. Should Alipay or WeChat pay bankrupt, which is extremely unlikely, it creates systematic risk,вЂќ Trivium China analyst Linghao Bao told CNBC. вЂњThe existing system is owned by private companies. Cash and coins are inefficient and expensive to store. Improving efficiency in the financial system.The big picture: Rolling out a national digital currency offers several advantages.

Some officials also hope DCEP could help internationalize China's currency, though China's tight capital controls have made the renminbi less attractive for international transactions.Chinese officials have stated they hope DCEP is ready for wider use in time for the Beijing Olympics in February 2022.What's happening: The Chinese government has started pilot programs in Beijing, Shanghai, and other cities that give small amounts of the currency, known as the Digital Currency Electronic Payment (DCEP), to residents on a lottery system, with a limited number of retailers participating. At least 60 countries are exploring the use of an official digital currency, but China is furthest along in making those plans a reality, while the U.S.Why it matters: China's new currency could set global standards for the use of national digital currencies - and give Beijing unprecedented visibility and control over domestic financial transactions. Where it stands: Federal Reserve governor Lael Brainard said in a speech in August that the Fed was working to build and test a 'hypothetical' central bank digital currency, noting that CBDCs 'present opportunities but also risks associated with privacy, illicit activity, and financial stability.In a push to dominate global financial technology, the Chinese government is aiming to roll out the world's first state-backed digital currency.

The use of the SWIFT system is a major conduit to imposing sanctions. to borrow money at will in international debt markets and to impose sanctions on countries it sees as hostile are both largely dependent on the dollar's status as the world's funding currency. On the other side: The ability of the U.S. In 2020, China drew double the amount of foreign capital to its yuan-denominated government bonds as the year before. The country has been opening up its financial markets and now has mainland stocks listed on top international exchanges like MSCI and its government bonds have been added to the global benchmark Bloomberg and JPMorgan bond indexes. since the end of World War II.Д«e smart: The lack of financial transactions in and broad use of its currency is the greatest detriment to China amassing global power. If China can cement the yuan as the world's favored digital currency, it could displace the dollar and provide China with the immense global privileges that have been enjoyed by the U.S. in the development of a central bank-backed digital currency and as such could be far ahead in the future of global payments and financial settlement. The big picture: China is far ahead of the U.S. Why it matters: The move has sparked 'speculation over the central bank's pursuit of promoting the global use of its digital currency,' China's state-operated Global Times wrote on Thursday.

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