China, which is considered one of the world’s most powerful economies, has announced the introduction of its own digital currency for its citizens.
This novel digital currency, named the “digital yuan,” would be entirely regulated by the country’s central bank, according to the Wall Street Journal. It does, though, have significant variations from Bitcoins and other cryptocurrencies. It would miss the anonymity and non-traceability of Bitcoins.
Instead, it would provide the country with a clear picture of the economy. China’s digital currency has been in progress since 2014, when bitcoin began to gain attention in the country, according to a study by TOI.
Is China the only country that uses digital currency?
China isn’t the only country working on a digital currency; central banks around the world are still working on their own versions. The United States is collaborating with Massachusetts Institute of Technology researchers to create its own digital currency, while Sweden has developed and tested a digital krona. The ‘Sand Dollar’ is also used in the Bahamas.
However, China is the first major economy to demonstrate a working digital currency that is already in use in many areas of the world, giving it a significant head start.
It functions similarly to a wallet-based payment system.
Bitcoins are more difficult to use than a credit card or cash. However, China’s digital yuan will work similarly to the country’s current app-based payment system, which includes applications like AliPay and WeChat Pay. Users will be able to download and store funds in accounts, as well as trade with citizens and vendors via QR codes.
The digital yuan aims to reduce the use of cash, which has already been significantly decreased in China. This, though, has no impact on the physical money that is held in banks for a long time.
The funds will be spread by commercial banks throughout the country. Banks would have to deposit a particular amount with the Public Bank of China in order to receive the digital currency.
Early trials of food delivery and ride-sharing applications are seen in Shenzhen and many other big Chinese cities. The use of digital yuan for purchases of smaller amounts is allowed in the early stages. However, the minimum number is yet to be decided.
China revealed the second phase of the trial this month, in which customers will apply for the digital currency from their bank.
What is the benefit?
Through the adoption of digital currencies, the government would have a greater understanding of how money flows in the economy, as well as the ability to trace the irregular movement of funds. This may also allow them to test new ideas by focusing monetary policy on particular economic groups and regions.
China has a bigger goal of globalizing its currency (similar to the US Dollar). As its popularity grows, more people will be encouraged to use it to make international payments.
