Ever since the Covid-19 pandemic hit last year, China has been making headlines highlighting its efforts to becoming the first major power to establish a sovereign digital currency. This has been a project that China has been working on since 2014.
The project has been under the control of The People’s Bank of China (PBOC). The PBOC has been spearheading the work on the digital yuan which is a so-called central bank digital currency (CBDC) with the aim of replacing some of the cash currently in circulation.
With the digital yuan, China also hopes that its physical currency rides on the back of its economic success and forces a shift away from the supremacy of the dollar. However, much confusion has continued to prevail over the subject of China’s e-yuan. Hence, here’s a brief rundown for the uninitiated:
What Is The Digital Yuan?
The digital yuan has been designed to replace or reduce the cash in circulation, such as coins and banknotes. However, not the money that has been deposited long-term in bank accounts. The Chinese market is already very advanced in cashless payments using digital transfers to fulfill their day-to-day activities. The e-yuan would be a way to speed up that process.
How Does It Work?
The distribution of the digital currency will be conducted via a so-called two-tier system. Under this, the PBOC will distribute the digital yuan to commercial banks. These banks will then be responsible for spreading the currency through to customers.
The execution of the digital yuan resembles, especially in terms of interface, already existing digital payment methods operating within the country. These include Alipay and WeChat Pay. Much like these platforms, users are to download wallets to store their vital currency. These will then generate a QR code that can be easily scanned by payment terminals.
Digitalization has undoubtedly accelerated during the pandemic with central banks worldwide increasingly looking into issuing fiat currencies on electronic forums. Cambodia, for example, became the first Asian country to formally launch such a system. Many other Asian countries are on the same path. These include Singapore, Japan, South Korea, and Thailand conducting various research and trials to have a formal system in place.
However, China’s push for an e-yuan is likely to have the greatest potential to impact the global economy, taking into consideration the government’s ambition to internationalize its currency, Renminbi. In order to do so, China has carried out a number of trials over the past few months to ensure its rapid progress towards a digital currency.
A number of small-scale trials were carried out at the beginning of 2020 after the results of which, one of the biggest pilot tests was executed in October of 2020. This involved issuing 200 yuan worth of digital money to around 50,000 people by means of a lottery system in Shenzhen. Tests were further carried out in other cities like Suzhou, Chengdu, and Xiong Gan as well.
But most recently, on the occasion of the new lunar year of the Ox in China, authorities in many cities gave away tens of millions of renminbi as the new year “red packets.” These could be downloaded on smartphones. Beijing and Suzhou alone have reportedly doled out 200,000 red pockets which could be worth $31 each.
Platforms such as the YuanPay App are equipped with advanced trading algorithms to help you take advantage of the launch of these coins. You can check out the yuan pay app review for further details on the workings of the app.