What is China’s Digital Yuan All About?
The most deadly thing we’re experiencing in 2020 is COVID-19. Although this pandemic created too much of inconvenience, the brighter side of it is worth noticing.
The world is opening up for a digital change. Due to this pandemic, the Central Banks of certain countries were under quarantine. As a result of which, there is a need for the hassle-free transaction of currencies. In such a situation digital currencies will play a prominent role in raising the economy of the country.
In the race of creating the world’s first sovereign digital currency, China appears to prevail in the race. As there are on the road to launch their own digital currency known as Digital Yuan. It was in 2014, China began its search to create Digital Yuan. In 2019, mobile transactions reached 347 trillion yuan (US$49 trillion) in China, which accounted for four of every five payments.
Xu Yuan, a senior researcher with Peking University’s Digital Finance Research Centre said:
“Looking back years later, the two defining historic events of 2020 would be the coronavirus pandemic, and the other would be [China’s] digital currency”.
In the month of April, the Chinese Central Bank began pilot testing for Digital Yuan in the cities Shenzhen, Suzhou, Chengdu, and Xiong’an. During the trial, the salaries to the government workers were given in the form of the new Digital Currency (internally referred to as DC/EP). According to the sources, the currency is expected to launch later this year.
What is Digital Yuan?
The Digital Currency Electronic Payment (DCEP) system of China imitates various banking activities like payments, deposits, and withdrawal through a digital wallet. When Digital Currency launches, the consumers should download an electronic wallet application approved by the People’s Bank of China (PBOC).
The digital wallet is then linked to a bank card to initiate the paying and receiving of digital yuan. The transactions are possible using a mobile phone with merchants or with ATM and other users.
Money in the bank accounts is converted to digital cash in a personalized manner. When you use digital yuan, there is an option where you do not require a bank account to carry out transactions.
Xu Yuan said:
“Looking back years later, the two defining historic events of 2020 would be the coronavirus pandemic and China’s digital currency”.
Till now, we have come across various online payment platforms like Alibaba’s Alipay and Tencent’s WeChat Pay, all of these use internet connection to accomplish transactions. But, the DCEP system does not require an internet connection to accomplish transactions.
To ease the functionality of the system, there is a “touch and touch” function, in which you have to only touch the two devices for payment transfer. Transactions through DCEP do not have any payment records with a third party or the banking system. The digital currency includes notes and coins that circulate in the society in the form of notes and coins but in a digital form known as M0. It is backed by the Central Bank of China.
When will it approach the market?
China is the first country to launch its own digital currency controlled by the People’s Bank of China. It is quite different from the other cryptocurrencies like Bitcoin, as it does not operate in a decentralized system and does not require any administration from a central authority.
The Digital Yuan may launch later this year or at the beginning of 2021. However, the exact date for the launch is not announced yet. In April, the first screenshot of a test version developed by the Agricultural Bank of China was discharged.
The trials for the currency have begun in four cities near Beijing in May. These trials will further expand to pilot programs at the venues for the 2022 Winter Olympics in Beijing and Hebei’s Zhangjiakou. The trials will be done in small transactions so that the company operations are not altered.
What’s Next?
Once the trial is completed, the digital currency will be used for paying the staff working at major government departments, administrative institutions, and even state-owned enterprises exclaimed Xu Yuan. Yuan further explained that as China goes cashless, the entire financial facilities and business forms will undergo extreme changes.
But those who are familiar with using mobile phones will be benefitted maximum with this digital transformation. According to yuan, there are chances that the Digital Yuan may resemble the evolution of Yu’e Bao. Yu’e Bao is one of the world’s top money market funds that are disseminated on Ant Financial’s payment network.
Citic Securities predict that the total size of China’s Digital Currency may reach 1 trillion yuan (US$140 billion) over the coming years. It is equivalent to one-eighth of China’s cash. Ultimately, the world is transforming digitally and the day isn’t far when each country will have its own digital currency.
