The global financial architecture made a quantum leap with China testing its digital currency, the "digital yuan," for the first time, after a research and development process that lasted at least five years.

President Xi Jinping has always stressed the urgent need to develop artificial intelligence and fifth generation technologies on a large scale, which he considered a new infrastructure.

The digital yuan is a new financial infrastructure in itself, and it has enormous geopolitical implications for China and the world at large, and most importantly, its ability to avoid any sanctions imposed by the United States.  

The writer Faisal Ahmed - in a report published by the American "Diplomatic" website - says that the digital currency differs from non-cash payments, similar to those that are paid through credit cards or applications. In such a case, the settlement is achieved immediately, unlike the non-monetary transactions in which the banks play the intermediary role.

Positive effects
The digital currency lags are means of communication between devices through which information and payments can be exchanged, thereby eliminating the usual dependence on banks.  

China can also use the digital yuan in various activities from the stimulus program and development aid, to direct financial transfers and infrastructure investments such as the Belt and Road Initiative. 

A digital yuan would enhance China's global competitiveness and strong position in global negotiations alike. 

This digital currency is expected to gain widespread acceptance in China, due to the mobile phone market sweeping in the country and its record of good financial integration. 

These factors, along with the state-run system (i.e. the digital yuan), will contribute to broadening the grassroots base of the digital currency system, as locals are already accustomed to using applications such as "AliBay and WeChatBay" and are likely to credit this digital currency without hesitation. 

The writer believes that the adoption of the digital yuan will have major impacts on the Chinese economy and people, as it helps to reduce costs and facilitate payments, and the People's Bank will be able to monitor payments and illegal abuses.

A digital yuan would help the government transfer any relief fund or direct stimulus programs to overcome the negative impact of Covid-19 on supply chains and livelihoods. Besides, the government seeks to exchange the salaries of government employees with this digital currency. 

Digital currency may pose a threat to American (European) financial hegemony

Digital yuan in front of Ata t
at the moment, is the US dollar strong currency are absolutely popular in terms of international transactions, by more than 90% of the foreign exchange market transactions, and this acceptance and confidence that the United States position negotiating the best grants in global financial markets. 

But the United States has in turn used this ability to apply economic sanctions to gain geopolitical advantages. 

For example, the IFC infrastructure requires banks to direct all transactions in dollars globally across the United States, giving them real ability to unilaterally freeze transactions, yet there have been European calls for the development of an alternative payment system at the World Financial Communications Association Interbank also. 

The author notes that the Chinese digital currency test is now a threat to American financial domination, since it provides an alternative to the dollar, and if adopted successfully, this digital currency will contribute to removing the global financial markets from the dollar-based system, and will also help the Beijing government to address any currency turmoil Politically motivated global. 

Currently, the yuan occupies a very small portion of global payments and reserves, but as China is the world's largest exporter, it is likely to push for the global use of the digital yuan among its trading partners and in the Belt and Road Initiative.

As the Corona epidemic continues, the US financial infrastructure is exposed. For example, operational problems occurred at the level of transferring relief fund funds to their beneficiaries. 

For this reason it is necessary to improve the financial technology infrastructure to boost economic activities and thus local growth. Indeed, the digital currency can provide more accuracy and transparency in such transactions, it can study specific sectors and provide selective relief packages to areas and populations most affected in times of crisis or natural disaster. 

The author emphasized that the adoption of the digital currency would provide a new perspective for policy interventions in difficult times, and the emergence of the digital yuan will affect most economies, large and small, due to its historical dependence on the financial system that is based on the dollar. 

Countries should prepare for this by switching to digital payments, breaching popular bases, financial inclusion, and gradually reducing their dependence on the dollar.