FX.co ★ Beijing might launch digital yuan with short lifespan

A digital currency with a lifespan? Why not? China’s authorities thought it would be a good idea to design a cryptocurrency with an expiry term. The digital yuan with an expiry date will enable the government to boost spending of the population.

China’s monetary authorities flirted with the concept of the yuan’s digital equivalent long ago, though its lifespan has never been discussed. In fact, this idea was brought up lately. From the viewpoint of the People’s Bank of China, this feature will encourage the population to spend money promptly inside the national economy. At the same time, the virtual yuan is not supposed to be used as a full-fledged monetary unit.

The digital yuan with a short lifespan does not comply with the principle of both fiat money and a cryptocurrency. With this approach, China’s virtual money lacks some important features. For example, the digital renminbi cannot be used as a means of saving, Petr Arefyev from the Financial University under the Government of the Russian Federation comments on Beijing’s new tool to monitor both the economy and people.

This solution has already sparked controversy among economists. They are speculating on whether it is right for the government to push people into spending, thus creating artificial demand. Another pitfall is that a short lifespan could bring problems for China’s economy. Indeed, if Chinese nationals are deprived of any means of saving, this could generate enormous demand for foreign currencies. Beijing is well aware of such unwanted developments. Therefore, the digital yuan could be launched with preset areas of use. Alternatively, the monetary authorities might introduce the digital yuan without an expiry term in parallel with the short-lived token. The third option is that electronic money will circulate alongside bills and coins issued by the People’s Bank of China. In other words, Beijing has to settle a variety of questions before the final decision is reached.