China is accepting a digital currency to pay taxes. What does this mean for cryptocurrencies?

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

Digital 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 at the Beijing Winter Olympics a few months ago, the e-CNY saw little success, as few spectators were able to watch the event. However, adoption of the coin has grown since then, with 10% of Chinese citizens having already used it in some way. With this rate of growth of the currency, some have speculated that it has the potential to dethrone the US dollar as the most important global reserve currency.

World effects

The e-CNY token has the potential to rock the financial world. China is the most active trading country in the world, and many have predicted that the digital yuan will slowly begin to supplant the US dollar, especially when buying goods or services from China. The shift to a digital currency as the primary medium of exchange has not yet occurred, however. For the digital asset to fully take over, China's current experiments to ensure the long-term viability of the e-CNY must be successful. 

If this coin sees widespread success, other governments could be pushed to create their own dedicated types of cryptocurrencies for different types of commerce. We may also see a new cryptocurrency created specifically for international trade. As more governments create their own digital currencies, unsupported digital currencies may become less valuable. Will the e-CNY give cryptocurrencies a global shock, or will this experiment die out?

Conclusions

China's new digital currency could be the first of many government-backed cryptocurrencies. As Chinese citizens start paying their taxes using cryptocurrencies, the effectiveness of this medium will be tested. The more the world sees the long-term success of cryptocurrencies, the more governments they will invest in their own tokens to use in all their affairs. The world is waiting to see the effects e-CNY will have on the rest of the world. If it provides a major benefit to China, this crypto could have the potential to replace conventional currency such as the US dollar.

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