The Digital Yuan: On its Way Now
A few weeks ago on at the beginning of October, China’s central bank has issued 10 million yuan ($1.5m; £1.1m) worth of digital currency to 50,000 people in the Shenzhen area via a lottery. This was part of the latest move by the Chinese bank for trial testing the Digital currency electronic payment (DCEB). Each person who won the lottery was gifted around 200 yuan and could spend it in more than 3,000 stores. Other states the currency was tested in are Suzhou, Xiong’an and Chengdu, and will test it during the upcoming Winter Olympics.
The Peoples bank of China(PBOC) has stated that they are planning to launch DCEP later this year, however they haven’t provided a release date as of yet. According to Frank Tang in Beijing, ‘China’s central bank is inching closer to the launch of its sovereign digital currency, publishing a draft law on Friday that would give legal status to the DCEP system, and including the digital yuan as part of the country’s sovereign fiat currency.’
The DCEP is not a crypto currency but a digital version of the Yuan. Mu Changchun, the head of the Chinese central bank’s digital currency research institute, confirmed this. He also mentioned that the digital currency cannot be used to buy gold or exchange foreign currencies, it is equal to the paper version of the yuan.
Tencent’s WeChat Pay or Alibaba’s Alipay are currently the top digital payment methods used by the Chinese people. A survey showed that around 4 out of 5 payments were done using the above payment methods mentioned.
Also the PBOC showed that in 2019 cashless payments of $49.27 trillion were made which is an increase of more than 25% over the previous year. The goal of the Chinese central government is to push for a cashless society, which is now the preferred method in most societies in the modern world, it’s effortless and stress-free, all you need is a cheap smart phone to make the payment.
The bank also wants to push the digital payments through the streets of China so everyone can make payments digitally eliminating the use of cash. I can see why this would be very useful for the people who have small businesses/shop on the streets of China. Take for instance the grocery stalls, food stalls or just any person trying to sell small value items. It would make their lives a lot easier to receive these payments directly into their account with a simple online transfer rather than carrying cash or always needing to have change on them which would sometimes make the transaction tougher if they didn’t have enough change.
This would also widely help the people who live in remote areas or villages where accessing a bank is a challenge. Saying that China digital payments are seen as one of the most advanced in the world. Mu also said that there is no direct competition between the two payment systems and Yuan. He said, “The digital yuan serves as a pure currency, while the mobile payment giants mainly provide infrastructure, i.e. their ‘wallets’ to accommodate the digital yuan…Users can keep using the two mobile payment tools after the adoption of digital yuan,”
The Digital Yuan: On its Way Now
However, the bigger goal here for the Central bank of China is to dominate internationally as they want to reduce its dependence on the global dollar payment system rather than address threats raised by cryptocurrencies or stablecoins. They don’t want Facebooks Libra to become the global currency as they think it’s worse than the current global financial system run by the US. So they are trying to compete directly with the dollar.
Chandler Guo one of the largest Bitcoin miners and blockchain investors in the world predicts that that one day everyone in the world will be using DCEP. He sees the use of DCEP for people living outside of China too. There are 39 million Chinese living outside the country and if they can still have a connection with China while being out of the country they will use DCEP to make payments he says making it an international currency.
Finally, I want to conclude by saying that DCEP will be centralised and state-run, unlike Bitcoin or Ethereum which are free of state control. Many fear that DCEP will be used as a tool by the Chinese Communist Party to exert greater control over their citizens through surveillance. The authorities will be able to monitor how money is spent in real-time. They will also have the same controls over DCEP as with the yuan. An anonymous Chinese cryptocurrency observer known as Bitfool said, “I trust Bitcoin more. Because it really belongs to me.”