A national digital currency project has been working in China since 2014 under the leadership of the People’s Bank of China.
China is gradually launching its digital currency to replace banknotes and coins in the future.
China has been testing with its digital currency for a while. In 2020, some services such as food delivery and car sharing applications were trialed and deemed successful in Shenzhen and some other cities.
China has also given away millions of dollars’ worth of digital Yuan as part of real-world trials of the currency, including an amount distributed by the local government through lottery in some cities.
According to a plan released by the Ministry of Commerce in August, there are plans to expand testing the digital yuan in several regions, including the Guangdong-Hong Kong-Macau Greater Bay Area, in the next few years.
China’s payments area has become digital, especially with Alipay and WeChat Pay systems. Unlike the payment systems owned by private companies, the digital Yuan, a real currency managed by the Central Bank, should increase efficiency.
It is still unclear on which technological platform the Chinese digital currency works, users often have to download a separate application to get digital Yuan.
Unlike Bitcoin, the world’s most popular decentralized blockchain-based cryptocurrency, which offers anonymity to users in the right applications, the digital Yuan will be controlled by the People’s Bank of China.
However, the central bank announced that the cryptocurrency variation will allow for small amounts of anonymous transactions.
In an article published in Yicai Global, Fan Yifei, vice president of the People’s Bank of China, said that staying a degree of anonymity “within a controllable range” can help financial security.
The payments will remain anonymous to some extent, but data analysis tools can help the central bank prevent money laundering and other criminal offenses. In addition, the country’s telecom operators will not be able to disclose users’ phone numbers and personal data to third parties, and the information will also be encrypted before being transmitted.
Although the currency was centralized in the People’s Bank of China, Fan distributed the PBOC’s digital yuan to commercial banks, while commercial banks introduced a “two-tier system” that would deliver the currency into the hands of consumers.
Digital Yuan Goes Global
China is strengthening the position of the Yuan in the global arena, with forecasts that say it could become the world’s third largest reserve currency after the US dollar and the euro within 10 years.
The PBOC has already begun to lay the groundwork for the digital currency to become global. Last month, PBOC joined central banks from China’s special administrative region of Hong Kong, Thailand and the United Arab Emirates to explore the digital currency cross-border payment project.
PBOC has already tested the digital currency in Hong Kong, allowing local residents to use it to pay in Guangdong Province.