Since 2014, China has been constructing its own national digital currency, a project pioneering the world community’s path into the digital era. The People’s Bank of China is charged with the project, with the set goal of ultimately replacing circulating physical currency with its digital counterpart.
Trials of the cryptocurrency are currently underway throughout China, and usage is expected to increase exponentially in the coming years.
What is the new Chinese Currency?
The digital yuan shares some similarities to traditional cryptocurrencies but contrasts starkly according to key metrics. Like traditional cryptocurrencies, the digital yuan operates entirely online, off the user’s cellphone or computer. The digital currency acts similarly to its physical counterpart in terms of spending, the only difference being the lack of a physical wallet.
At this point, it’s not entirely clear how users will earn, hold, or spend the digital currency once it is enacted nationwide. The most popular forms of digital payment in China are Alipay and WeChat Pay, which utilize QR codes to connect merchants and users financially. Chinese banking executives have reported that the currency will be similar in form to these traditional and successful payment methods.
Will the Digital Yuan Compete with Traditional Cryptocurrencies?
No. Bitcoin and other cryptocurrencies utilized for investing and holding assets operate on blockchain technologies with anonymity. The digital yuan will operate on traditional banking technology, not offering users much investment opportunity or anonymity.
The similarities end there, traditional cryptocurrencies are often decentralized, meaning they are not controlled by any one government or banking entity. The digital yuan on the other hand is controlled entirely by the Chinese government.
Why is the Digital Yuan being introduced?
The Chinese government has been increasingly concerned with traditional economic methods. They are looking to seize more economic control, cut storage and producing costs, and launch their country into the digital world. With a digital currency, the Chinese government would more easily stamp out criminal activities. Traditionally, online payment methods have been controlled by private entities, the Chinese government is looking to even the playing field by creating a nationalized platform that increases the efficiency of payments.
China has long been pushing for a currency to connect the world, and some pundits have opined that the digital yuan is a step towards doing that. Chinese banking officials claim this is not the case, claiming the immediate focus is on domestic currency exchange.
This is not to say the Chinese government hasn’t been looking into creating a cross-border currency. Chinese bankers joined forces with central banks in Thailand, the UAE, and Hong Kong last month to implore the possibility of creating an international payment exchange.