Major Developments In China's Digital Yuan Project
- Written by NewsCo
Over the past year, China has gained prominence for its quest to become the first major nation to establish a sovereign digital currency. While the country has been working on this project since 2014, major developments were made only recently.
China has made promising progress with the development of its digital currency. It recently announced the success of a pilot in the city of Suzhou, located in eastern China near Shanghai. In this trial, ¥55 worth of free money was given to 181,000 consumers in digital wallets. This could be redeemed at the outlets participating in the Double Fifth shopping festival between May 1 and 5.
This recent trial was part of a bigger test conducted by the People’s Bank of China (PBOC) targeting 500,000 consumers in eleven Chinese regions since April. For those eligible, a straightforward app is downloaded by which they get a wallet. For using these to make purchases in the participating stores, they are offered discounts.
But what exactly is the digital yuan and its aim? The digital yuan is the electronic form of the normal Chinese currency. It is built on blockchain technology; the online tamper-proof ledger technology that is the essence of digital coins like Bitcoin and Ethereum. However, the major difference that sets China’s digital currency apart from cryptocurrencies is that the permissioned blockchain. This means that while coins like Bitcoin enjoy no interference from third parties such as banks and government due to decentralization, the digital yuan will be controlled by the People’s Bank Of China.
It has been designed to reduce the cash in circulation, such as banknotes. The money held in long-term bank accounts, however, is not included. This isn’t something new for the people of China as the Chinese market is already quite advanced in cashless payments, using digital transfers to conduct their routine activities. The digital yuan is only a way to speed up that process.
The digital currency is expected to follow in the footsteps of Bitcoin, which was worth only a few cents when it was first launched. Today, it's worth thousands of dollars, giving investors and supporters hope that one day the digital yuan will reach the same level. If you're looking to jump aboard the digital yuan bandwagon, check out https://yuan-pay-group.org/
Compared to the original round of tests that took place in autumn 2020, this latest round is ten times larger. China has even been holding trials of the digital yuan cross-border between Hong Kong and neighboring Shenzhen. It is also developing a platform for making this digital currency internationally viable that involves the UAE, Thailand, and the Bank of International Settlements.
With every step forward, China's chances of being the first nation to use a permissioned blockchain are increasing. It is unclear when the national rollout will take place, but it seems likely to happen in staggered stages over the next 12 months. Meanwhile, western central banks, including the Federal Reserve and Bank of England, have yet to pick up pace in introducing the so-called central bank digital currencies. They are more concerned about privacy when all transactions are publicly visible on the blockchain, as well as the impact on retail banks. However, having a digital yuan in circulation raises profound questions about global financial stability. The key question for the world's other major economies is how to respond.
A More Digital Financial Future
China’s digital yuan already has a legal tender status. Payments that are made through it are fundamentally different from those made on platforms such as Alipay or WeChat. Although these services may settle transactions very rapidly for customers, behind the scenes, they involve a large number of transactions between buyers and sellers' banks as well as intermediary banks that are often settled hours or even days later.
Digital currencies, such as the yuan, do away with the need for banks. As opposed to these payment alternatives, there is no service fee, and in theory, the speed of payments can be made even faster in theory.
The digital yuan is also backed by the government of China, unlike digital currencies such as Bitcoin. The Digital yuan has the same security as cash due to its similar issuance to that of physical currency. Unlike cash, with a digital currency, the government has better control over the money supply by being able to see all transactions in real-time.
China is working hard and fast to get its digital yuan ready for rollout and also hopes that its digital currency is fueled by its economic growth and forces a shift away from dollar dominance. However, if it will be able to achieve so, still remains to be seen.
Daily Bulletin
