Most of us have been paying for goods and services online using services like PayPal and Skrill, but this does not indicate that we are using digital currencies. China, on the other hand, wants to fully replace the yuan in its physical form with its digital currency, the digital yuan.
Unlike Bitcoin, Ethereum, and other cryptocurrencies, the digital yuan is a digital currency plain and simple. Instead of promoting a decentralized and anonymous system similar to that of crypto, the digital yuan is based on a centralized system controlled by the People’s Bank of China. In this system, the Chinese government can track every digital yuan movement, allowing it to see how people are using the currency.
The digital yuan would work similarly to other automated payment systems. Users can perform purchases that do not need internet access by using an app or a wallet. The app has already been downloaded by over 100,000 users. To test the unit, early adopters were granted a small number of digital yuan, which they used to shop at places like Starbucks and McDonald’s.
The paper yuan will be replaced by digital yuan at some stage in the future. Any physical yuan issued will be cancelled along with any digital yuan issued, potentially halting the introduction of new currency into circulation.
China also intends to extend the new digital currency to other countries, allowing businesses and customers to make foreign purchases more quickly and cheaply. The People’s Bank of China has been working on the digital yuan since 2014, when one Bitcoin was worth less than $1,000.
China isn’t the only country working on digital currencies. More than 60 countries are currently creating or researching the prospect of introducing their own digital currencies. Sweden, for example, has already played with a digital krona. The Bahamas have also issued a digital currency known as the Sand Dollar, which is open to all people.
As for a digital U.S. dollar, treasury secretary Janet Yellen thinks “it makes sense for central banks to be looking at it.” Jerome Powell, the federal reserve chairman, has also commented on it, stating it is a “high priority project for us.”
Image credit: Li Hao/Global Times
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