China is classified as a world leader in the development of a digital national currency, a project on which it has worked since 2014.
The People’s Bank of China (PBOC), which seeks to replace cash in circulation, has led the work on the digital Yuan.
In the second-largest economy in the world, real-world experiments have already begun. Here is what we know about the electronic digital currency payment, or its official name, the e-Yuan.
What Is the Digital Yuan?
This is how banknotes and coins in circulation can be digitized by the central bank. When it comes to cashless payments, the Chinese market is already well advanced. The digital Yuan is a way of speeding up this process.
It is a legal tender in China, and there is no interest payable.
Cash use is declining dramatically around the world. Physical cash may eventually be replaced in digital format by emerging and existing cryptocurrencies.
How Does the e-Yuan Work?
The question has two aspects: distribution and secondly how it might be used.
A two-tier method is to be used for distribution. This indicates that the PBOC intends to distribute the digital yuan to businesses and banks. The commercial banks would have to put the currency into the consumer’s hands. Services that enable consumers to trade their coins and cash for digital Yuan may be a mainstay soon.
In real-world experiments at several locations, including Shenzhen, Chengdu, and Suzhou, China has already provided millions of dollars in digital money. This includes the distribution of some e-Yuan by the local government via a lottery.
To obtain cash, users frequently need to download an online or smartphone app. YuanPay Group is a leading e-commerce business in China, which was involved in the test of the eYuan. The platform also permitted the purchase of digital yuan items by customers.
The PBOC also noted commercial banks already possess the digital Yuan infrastructure for distribution.
Can it Compete with Tech Giants?
Many experts believe the digital Yuan is not an Alipay and WeChat Pay direct competitor. Instead, it provides a new platform that allows other players to compete with WeChat and Alipay. These players might be commercial banks or other payment firms.
The members of the PBOC stated that the two-stage model offered assistance in averting financial sector disintermediation. This is because the central bank cannot compete with the commercial bank.
Is the eYuan Similar to Bitcoin?
No, it is not. Bitcoin is a decentralized cryptocurrency; therefore, the government does not regulate it. The eYuan is controlled by the PBOC, and all trades are regulated and monitored.
Bitcoin is also based on blockchain technology. The technical composition of a digital yuan is still relatively uncertain now.
Supporters of Bitcoin hail the digital currency due to the level of anonymity related to the asset.
The fan of the PBOC stated that the digital Yuan had anonymity that could be controlled. This would include digital Yuan wallets and sole third-party transactions that would be disclosed to the PBOC. The use of a ‘loose account connection’ means that your current bank account can be connected to your digital Yuan account if necessary.
According to the PBOC, digital services agencies shall ‘asynchronously transmit the transaction data to the central bank.’ This would empower the PBOC to pursue the required information to combat money laundering and crime.
However, several critics have expressed alarm over the possibility of using digital Yuan to increase surveillance on citizens.
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