How much is China testing its digital currency?

Since launching a trial of its digital yuan program two years ago, China’s plan has so far become a source of concern for many of the country’s critics, highlighting how it could further fuel the capabilities of monitoring of China. However, it has also encouraged other central banks to explore the potential of centralized e-money in the age of digitalization.

Digitize the Yuan

The digital yuan, also known as e-CNY and officially called Digital Currency Electronic Payment, is issued by the People’s Bank of China (PBoC) and has the same value as the . It is the first of its kind in the world and aims to create a new form of currency to meet consumer demand for cash for online transactions.

According to a white paper published by China’s central bank last year,

“The e-CNY system will strengthen China’s digital economy, improve financial inclusion, and make monetary and payment systems more efficient.”

The PBOC began researching a digital currency as early as 2014, and since the digital yuan app launched on app stores in China in January, the payment method has gained popularity among Chinese consumers. China has also accelerated the rollout of digital yuan trials to more cities in time for the 2022 Winter Olympics and Paralympics earlier this year.

e-CNY has since been used in various applications, including wholesale and retail trade, catering, tourism and administrative fee payment, extending its use to offline transactions. Users can simply touch their phone to payment terminals in physical stores using QR codes or Near Field Communication (NFC).

By the end of 2021, China’s digital yuan transactions reached nearly 87.57 billion yuan ($13.17 billion).

AliPay, WeChat Pay integration

China’s central bank has also integrated e-CNY into China’s two most dominant mobile payment platforms: Tencent Holdings (OTC:) WeChat Pay and AliPay through Alibaba Group’s (NYSE) fintech subsidiary Ant Group. Platforms have recently started accepting payments made via e-yuan.

The move came as Beijing imposed tougher regulations on the fintech sector in a bid to crack down on monopolies and money laundering using mobile payment apps.

Not a cryptocurrency

While China has quietly explored building a blockchain platform to facilitate the deployment of blockchain technology for businesses, e-CNY is not part of the plan. The digital yuan is not a cryptocurrency.

Beijing has repeatedly warned of the potential risks to financial security and social stability associated with cryptocurrencies such as . He went so far as to order the closure of companies that provide software services for cryptocurrency trading, asking AliPay and WeChat Pay to avoid providing services for virtual currency transactions and to crack down on activities. mining and trading related to bitcoin.

Start the digital currency trend

The rapid introduction and expansion of the Chinese digital yuan has encouraged other central banks to explore the possibility of launching their versions of the e-CNY. A survey conducted by the Bank for International Settlements in 2021 revealed that nine out of 10 out of 81 central banks worldwide are planning to launch their digital currencies.

Skeptical of E-CNY

Still, many financial watchers and governments remain skeptical of the digital yuan, fearing that Beijing is using it as a tool for increased government surveillance. Critics argue that the Chinese Communist Party could use e-CNY as a window into every payment transaction made in China because, unlike cryptocurrencies which use blockchain technology to maintain transaction anonymity, the Chinese digital yuan relies on a centralized ledger that the central bank validates without the need for banks.

Critics have also raised concerns that the e-CNY could undermine the role of a global reserve currency, potentially destabilizing US financial dominance.

That China’s exact plans for the digital yuan go far beyond offering a new payment system for residents, the launch of e-CNY has allowed central banks to explore new ways to make payment systems more convenient for people in the digital age.

Sylvia B. Polson