• Sat. May 21st, 2022

China accepts digital currency to pay taxes. What does this mean for crypto?

ByHazel R. Lang

May 3, 2022

Image source: Getty Images

Will the Chinese digital yuan overtake the US dollar?

Key points

  • The government’s acceptance of the digital yuan could spark interest in other countries to launch their own digital currencies.
  • With all the trade in and out of China, their dedicated digital yuan could become one of the biggest currencies in the world.
  • Many have predicted that the digital yuan will slowly start to supplant the US dollar, especially when purchasing goods or services from China.

The new Chinese digital yuan, e-CNY, is now used for official payments such as taxes and social security contributions. After testing the initiative at the Winter Olympics this year, the coin is being embraced by a growing number of Chinese citizens. With China being such an important trading nation, the e-CNY could find itself replacing the US dollar as the most widely used currency in international trade.

Numerical Yuan

China has taken a bold step, being among the first to create its own form of digital currency in the form of the digital yuan. After a test run at the Beijing Winter Olympics a few months ago, e-CNY had mixed success as few spectators were able to attend the event. However, adoption of the currency has increased since then, with 10% of Chinese citizens having used it in some way. With this rate of currency growth, some have speculated that it has the potential to dethrone the US dollar as the world’s most important reserve currency.

Global Effects

The e-CNY token has the potential to shake up the financial world. China is the most active trading country in the world, and many have predicted that the digital yuan will slowly start to supplant the US dollar, especially when purchasing goods or services from China. However, the shift to a digital currency as the primary medium of exchange has not yet taken place. For the digital asset to fully take over, China’s current experiments to ensure the long-term viability of e-CNY must succeed.

If this coin sees widespread success, other governments might be incentivized to create their own types of dedicated cryptocurrencies for different types of commerce. We might even see a new cryptocurrency created specifically for international trade. If more and more governments create their own digital currencies, non-government backed digital currencies could lose value. Will e-CNY trigger a global crypto upheaval, or will this experiment fail?

The bottom line

China’s new digital currency could be the first of many government-backed cryptocurrencies. As Chinese citizens begin to pay their taxes using crypto, the effectiveness of this medium will be tested. The more the world sees the long-term success of cryptocurrency, the more governments will invest in their own tokens to use in all their transactions. The world is waiting to see the effects the e-CNY will have on the rest of the world. If it offers a great advantage to China, this crypto could have the potential to replace conventional currency like the US dollar.

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