How the New Digital Currency Change Feng Shui
The Chinese government has finally chosen the simplest way to incorporate digital currency into their economy – implementation via the economic and social, budgetary spheres. Already in May, representatives from the central and regional government work in Suzhou will get half of all transportation subsidies from EP and not in traditional Renminbi. The move came as quite a surprise considering that the two sides have been relatively closed about each other’s plans for the past year or so. The central leadership may have underestimated the sensitivity of the issue, especially when trade and infrastructure projects in China’s restive region seem to be going on for years without delay.
The move marks yet another evolution in China’s approach to international trade. The People’s Republic has always had an uneasy relationship with the rest of the world. However, it has started making changes gradually, especially on the monetary front, to build more solid bridges to the rest of the world. Now, this seems to have reached the financial realm as well. While the state digital currency was given its own unique name, ‘renegotiated’ to sound less like an act of war, the move marks yet another step towards a more global role for the Chinese state.
In theory, the new renminbi would serve as a more international alternative to the existing Chinese state digital currencies (RMB), currently used by almost all individuals and companies across the country. This would mean that, just like the renminbi’s international trading, the new Chinese convertible currency would allow for faster trade within the country as well as abroad. However, there are a few things worth noting before we get too deep into this discussion. It is important to understand why the state digital currencies are being given away in the first place.
The main reason for giving these new digital currencies away is to encourage greater trade within the country, both at the exchanges as well as at the market. Just like the renminbi’s international exchange rate, it hopes to foster a stronger economy at both the local and national level. To be clear, there is no expectation that the new digital currency will replace the RMB anytime soon. But given the current outlook for China’s economy, there is no doubt that the new currency is a step in the right direction.
To understand why the new digital currency is important, it is important to understand the dynamics between the RMB and the new Chinese convertible currency. For the moment, let us look at the RMB. China’s currency has been very beneficial for individuals and companies both locally and across the country. The new renminbi, as the name suggests, is a form of currency that is based on the RMB. However, the new currency is not expected to completely overtake the RMB in terms of value in the foreseeable future.
At the point of this writing, the new renminbi is valued at roughly two hundred and forty-seven against the U.S. dollar. This represents a significant increase from recent times, when the new currency was valued at approximately two hundred and thirty-three against the dollar. At the current exchange rates, this represents a premium of approximately two to three percent over the value of the RMB. This premium is expected to decrease once the new digital currency becomes more widely adopted throughout China. In order to better understand the impact of this premium on China’s economy, it is important to compare the RMB with other currencies. Using a current Forex trading guide, one should be able to quickly and accurately determine the value of other major currencies.
The second major impact of the new digital currency is its potential impact on offshore business investment opportunities. Many countries around the world, including the United States, have sought to take advantage of the new digital currency. If the new digital currency becomes more widely adopted in China, foreign investors may be encouraged to relocate to China in order to take advantage of this foreign exchange market. This would open up a new market for Chinese exporters of goods and services and could potentially provide a source of revenue for the Chinese government.
Finally, the introduction of the new digital currency has had indirect positive effects on Hong Kong’s economy. For example, many individuals who are currently holding accounts in the Chinese mainland but also have accounts in Hong Kong have been able to use the new RMB as a method of payment for certain goods and services that they may have otherwise purchased in the mainland. These transfers, if they occur, are typically considered as taxable income to the individual and are subject to Hong Kong tax. In addition, many foreign companies have made large profits by utilizing the new virtual money. Given these changes and the potential for more positive developments in the future, the new RMB is a very attractive investment option for both domestic and foreign investors.