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E-RMB is launched in China: what will change?

CGTN recently published a video showing how to use the E-RMB to pay for products in Shenzhen, China. The new currency has been launched in several cities and areas around China in its pilot program.
What will this new digital currency change for China, and for the world?
First, let’s try to understand a bit further what a digital currency is.

What is digital RMB?

E-RMB, or digital RMB (or E-CNY), is an electronic currency directly convertible to Chinese RMB. It is practically the version 2.0 of the already well present digital payments, namely Alipay and Wechatpay.
Another important point is that the state distributes E-RMB, just like classic paper money. It is indeed more similar to cash than to other digital payment forms.
The method to use it is similar to digital payments already developed. But the logic behind it is different as the provider is not a private business. This is not just a valid alternative to Alipay and Wechatpay: it’s a totally different world.
This new product will cut lots of costs in banking and withdrawing services, but that is not all there is to it.

Why E-RMB is important for China

In China, E-RMB will find many potential users in its rural area.
This is because the payments do not even require internet connection – even considering China’s vast 5G infrastructure, this can prove quite useful for many people, especially in rural areas. You just need to put two phones next to each other and pay.

E-RMB used in Shenzhen, China
Source: CGTN

The logic behind the E-RMB is very close to the one behind famous cryptocurrencies such as Bitcoin and Ethereum. Yet, it solves cryptocurrencies’ biggest dilemma: how many people would accept them? Since Chinese government is behind the E-RMB, that problem is immediately solved.
E-RMB is convertible to regular RMB, and this ensures the stability of the currency.
E-RMB is also an important point because it is a very valid alternative – actually, an innovation – when compared with Alipay and Wechatpay, which are services of private companies. This actually will hurt the interests of the companies behind those two services. Yet, they are both well consolidated in China and this won’t really hurt their business too much. Alipay, for example offers trading and stock services just as a regular bank, and many consider them even superior and easier to access to most Chinese banks.

Why E-RMB is important for the world

Rolling out a digital currency is an important step forward. While some consider it as a Sputnik moment, it is arguable how powerful the impression of this event is worldwide.
The E-RMB can become a much more convenient way to trade with China: this will exempt other countries from using a third currency (the US dollar) to trade with China. This is especially important for the countries where Chinese investment is big, especially those which adhere to the Belt and Road Initiative.

Map of the Belt and Road Initiative. Source: World Bank

For these countries, trading in E-RMB will be much more convenient, and as a matter of fact they already trade in RMB. This also means China’s dependency on the USD will be much lower with time, and that takes away leverage from the USA both in economy and politics.

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