China, as it strives to be the advanced economy of the world, seemed to be adopting cryptocurrencies. Just two years ago after bitcoin was born in 2011, China opened up to the first bitcoin market. Now, in 2021 the digital yuan will replace some banknotes and coins ion circulation.
Currency tests – whose name is Digital Currency Electronic Payment (DCEP) was conducted in many large cities including Shenzhen, Chengdu and Suzhou.
In China where the electronic payment system is very well developed, the introduction of the digital yuan will be a matter of time.
“The use of cash is decreasing. Eventually cash will be replaced by something in digital format. That is one of the big drivers behind this,” Yan Xiao, project lead for digital trade at the World Economic Forum.
How will digital yuan work?
The central bank distributes the digital currency to consumers through 6 commercial banks, usually through a wallet application. Payments can be made by scanning QR code, wearable devices, and even physical wallets with embedded digital chips. There were about 20 million digital yuan wallets in existence by June, according to the government, and the transaction volume reached 34.5 billion yuan ($ 5.3 billion).
Is digital yuan similar to bitcoin?
However, the digital currency of China should not be equated with other cryptocurrencies. Electronic yuan will be issued by the PBOC, while e.g. bitcoin is so-called a decentralized cryptocurrency and is not controlled by any central bank.
What is designed for?
- The money flow is hidden in cash transactions and even mobile payments, so government wants to get a better overview of the money flow in the country.
- Through a “controlled anonymity system”, digital yuan will help maintain China’s financial stability. As a result, payments would be somewhat anonymous, but the interests of data analysis could have assisted the central bank in detecting illegal activities, including money laundering.
- Competition in payment system will be increased, which are currently dominated by Alipay and WeChat.
- It is intended to strengthen the position of yuan.
Negative sides of digital yuan
Nevertheless, some people call for such actions to be politically threatening because having a currency and being able to control it directly makes it easier for a government to enforce its political intentions.
Sources:
https://www.cnbc.com/2021/03/05/chinas-digital-yuan-what-is-it-and-how-does-it-work.html
https://qz.com/2065913/chinas-answer-to-crypto-is-the-digital-yuan/