What China’s Digital Yuan Means for Forex

When China announced that it will be creating its own digital currency, the Digital Yuan, it triggered much speculation and excitement among traders. As the world’s second largest economy, the introduction of the digital Yuan could have major implications on a wide range of assets, including Forex and Cryptocurrencies. China is the first nation to take this bold step, although experts argue that other countries will soon follow suit.

What is the Digital Yuan?

The digital Yuan, or DC/EP, is a digital version of China’s national currency, the Yuan. It is being backed by Yuan deposits held by the Central Bank of China and banks are being asked to convert part of their holdings in DC/EP which can be distributed to the public through mobile technology.

Members of the public and private sector can already open a digital wallet in China using only mobile number, and the government is planning on funding these wallets using targeted stimulus payments.

This project has been around five years in the making, with a trial taking place last September. Traders are now beginning to speculate on the impact that the digital Yuan can have on markets.

What impact can the Digital Yuan have on markets?

As a digital currency, the DC/EP has the potential to be a major disruptor in traditional markets. This could result in high volatility across various sectors, especially as more countries may follow in China’s footsteps to introduce digital currencies of their own.

It is only a possibility that other countries will allow citizens to adopt the digital Yuan for their digital payments, which have already been on the rise across the globe.

Further to this, Coinbase’s impressive IPO also showed great interest in digital currencies as its highest point represents a market cap higher than other traditional stock markets.

But is the Digital Yuan a threat to the dollar?

The rollout of the Digital Yuan has several political and economic implications, but experts argue that this is not a direct threat to the US Dollar and other currencies. Rather than an attempt to strengthen the Yuan on an international level, Chinese officials have stated that the Digital Yuan aims to contribute to revolutionising financial services.

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