China Is Accepting a Digital Currency to Pay Taxes. What Does This Mean for Crypto?

Will the Chinese digital yuan overtake the U.S. dollar?

China’s new digital yuan, e-CNY, is now being used for official payments like taxes and social security premiums. After testing the initiative at the Winter Olympics this year, the coin is being adopted by an increasing number of Chinese citizens. With China being such a prominent trading country, e-CNY could find itself replacing the U.S. dollar as the most prevalent currency for use in international trade. 

Digital yuan

China has taken a bold step, being among the first to create their own form of digital currency in the form of the digital yuan. After a test at the Beijing Winter Olympics a few months ago, e-CNY saw reduced success, as few spectators were able to attend the event. However, the currency’s adoption has grown since then, with a reported 10% of Chinese citizens already having used it in some way. With this rate of growth for the currency, some have speculated that it has the potential to dethrone the U.S. dollar as the most prominent global reserve currency.

Worldwide effects

The e-CNY token has the potential to shake up the financial world. China is the world’s most active trading country, and many have predicted that the digital yuan will slowly begin to supplant the U.S. dollar, especially when purchasing goods or services originating in China. The shift to a digital currency as the major medium of exchange has not occurred quite yet, however. In order 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 could be prompted to create their own dedicated types of cryptocurrencies for different kinds of trade. We could even see a new cryptocurrency created specifically for international trading. If more and more governments create their own digital currencies, non-government-backed digital currencies could become less valuable. Will e-CNY spark a worldwide crypto shake-up, or will this experiment fizzle out?

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 for use in all of their dealings. The world is waiting to see the effects that e-CNY will have on the rest of the world. If it provides a great benefit to China, this crypto could have the potential to replace conventional currency like the U.S. dollar.

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