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China to Replace Cash with National Digital Currency

Tests began in April, making them the first in the world to issue a national digital currency.

Ann Moises

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  • The People’s Bank of China issued their first ‘digital yuan’ in April.
  • Their Digital Currency Electronic Payment (DCEP) will replace the cash circulating in the country.
  • They began trials in four cities earlier this year, and had set to test its use in more cities across the country in August.

Due to China’s desire to maintain their sovereignty and to keep up with the rapidly digitizing economy, the People’s Bank of China (PBOC) issued their first ‘digital yuan’ in April.

The PBOC authorized some commercial lenders to test the digital money called Digital Currency Electronic Payment (DCEP), in Suzou, Xiong’an, Chengdu and Shenzhen. They also included the 2022 Winter Olympics venues in Beijing and Zhangjiakou.

Former PBOC Governor Zhou Xiaochuan initiated this project. He wanted to protect the country from someday adopting a standard like Bitcoin, which was designed and controlled by others.

PBOC did not disclose the full details on how it would work. But consumers are likely to download a digital wallet on their phones, and deposit money from their bank account into it.

People can then receive and make payments with anyone who has a digital wallet.

Although there is no specific timetable yet, the Ministry of Commerce had planned to extend the test in more cities including Beijing and Hongkong in August.

According to Bloomberg, the tests permitted selected users to convert between cash and digital money, check account balance, make payment and remittance.

During the first quarter of the year, payment platforms such as Alipay and WeChat handled approximately $7. 8 trillion of transactions in the country.
Majority of the country’s citizens already use mobile payments – including street-food vendors from small towns prefer mobile payment apps.

Thus, the transition should run smoothly once PBOC makes an official launch, the Los Angeles Times reported.

However, unlike credit cards and these privately owned payment services, the state will be liable to the digital yuan, just like cash. The DCEP’s value will also be as stable as the actual money.

According to PBOC, the DCEP ‘will help to accelerate the move to a cashless society and enhance financial inclusion.’

Moreover, it will ‘give the central bank more control over a payments market,’ the Bangkok Post wrote.

The PBOC will issue digital currencies to commercial banks. It will be equivalent to the amount of cash or deposits at the central bank. The banks can then dispense the DCEP to those customers who have passed the ‘Know Your Customer’ (KYC) Verification.

In August, the China Construction Bank quietly added a wallet service using DCEP.

The function was not yet officially available to the public. Before they could disable the feature, some customers have already succeeded in making small transactions, the article stated.

Customers who knew about the feature linked their CCB account to the wallet. Consequently, they were able to transfer money to others either by using a phone number or a unique wallet ID.

DCEP will be convenient and efficient as well. But unlike cash and cryptocurrencies like Bitcoin, transactions won’t be anonymous due to a traceable digital ledger.

While some people are concerned about their civil rights, this could be helpful in preventing money laundering and other illegal transactions.

According to the Los Angeles Times, a survey showed that majority of the world’s central banks have begun exploring digital currencies. As the Chinese government continues to improve theirs and their payment systems, it is highly probable that other nations will seek out China’s financial technology.

This DCEP will also reinforce the communist country’s longstanding efforts to internationalize the remninbi, their currency.

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