China: A Glimpse into the Future of Global Finance?

In an eastern city in China, Changshu, located in the Jiangsu province, public sector employees are slated to receive full payment in digital yuan, marking a major step in the country’s aggressive drive to promote this currency.

This move, revealed in an official document disseminated extensively on government websites, is set to commence in May. State media report that this marks the most extensive deployment of the digital yuan, also known as e-CNY, in China thus far.

  1. The digital yuan is called the Digital Currency Electronic Payment (DCEP).
  2. Its development initiated in 2014 by the People’s Bank of China, making it the first major economy to issue a digital currency.
  3. The digital yuan utilization does not require an internet connection, it uses NFC technology.
  4. The transactions in the digital yuan are traceable, unlike some cryptocurrencies like Bitcoin.
  5. Its testing began in 2020 across major cities including Shenzhen, Suzhou, Xiongan, Chengdu and Beijing.
  6. One of the objectives of digital yuan is to prevent Yuan’s depreciation from other digital currencies.
  7. The digital yuan is backed by China’s fiat currency – the yuan.
  8. As opposed to cryptocurrencies, the digital yuan is not decentralized.
  9. The digital yuan has the potential for international use, particularly in countries involved in China’s Belt and Road Initiative.
  10. China’s central bank maintains privacy protection measures for the users’ information.
  11. Use of the digital yuan is aimed to give the Chinese government more control over the economy by avoiding banking systems.

China’s Changshu City Leads the Way in Digital Yuan Adoption

The new payment method will impact government employees, employees of state-owned enterprises, and staff at public institutions like schools, hospitals, libraries, research institutions, and media organizations throughout the city. Changshu is a city with a population of around 1.7 million and has already been experimenting with the implementation of the digital yuan, a form of currency that exists solely online and is overseen and supported by China’s central bank.

The digital yuan, which integrates some aspects of blockchain technology, is similar to cryptocurrency. Each transaction is documented and can be tracked in a digital ledger. Since last October, Changshu has been paying some government employees’ transit subsidies in digital yuan.

AspectDetail
NameDigital Yuan (DCEP)
Started Development2014
TestingBegan in 2020 across major cities in China
Regulated byThe People’s Bank of China
AimTo replace physical money and establish China’s sovereignty over the digital economy
Blockchain-basedNo
AnonymityLimited; Pseudonymous to the central bank
Tracing TransactionsPossible
Used InternationallyAimed to be used locally but has potential for international use
Comparison with CryptocurrenciesNot decentralized; It’s a form of Central Bank Digital Currency (CBDC)
BackingFiat currency (Chinese Yuan)

China is on the brink of becoming a cashless society, yet the majority of electronic transactions are conducted on privately owned apps such as Alipay and WeChat Pay, which operate beyond the immediate oversight of the state. The introduction of an official digital yuan would alter this landscape, providing Beijing with an unprecedented level of insight into individuals’ spending habits and locations.

China, the world’s second-largest economy, has been conducting trials of the digital yuan in various cities since 2020, as it gears up for a nationwide launch. This could potentially put China ahead of Europe and the United States in the global competition to develop a state-backed digital currency, also referred to as a central bank digital currency (CBDC).

This digital yuan is already accepted in the Main Media Center (MMC) for the Beijing 2022 Winter Olympics at the Beijing 2022 licensed product official store. However, this event will not serve as the grand unveiling of the digital currency that China had anticipated.

The global implications of the digital yuan are significant, as this state-backed digital currency could reshape the financial industry and redefine the concept of money in the digital age. As China continues to develop and expand the use of the digital yuan, its impact on global finance and its potential to disrupt existing financial systems will continue to be closely watched.

  1. “The motivation for the e-CNY (digital yuan) is not about replacing the US dollar, but about protecting China’s monetary sovereignty.” – Zhou Xiaochuan, former governor of the People’s Bank of China.
  2. “With the help of a digital yuan, China could decrease its dependence on the global dollar payment system.” – Yaya Fanusie, adjunct senior fellow at Center for a New American Security.
  3. “It’s not like Alipay or WeChat Pay. It’s quite different.” – Mu Changchun, head of the PBOC’s digital currency research institute, addressing its unique features.