The Digital Yuan is a Chinese digital currency project which is planned to launch this month with pilot testing first. The deputy governor of the People’s Bank of China (PBoC), recently said that the digital yuan project has completed it’s testing formulation. With the next step for digital yuan planned to start testing in several locations.
Chinese media outlets have published some reports hinting the Central’s Bank plans for the digital yuan. According to the details in the reports, the digital yuan is set to launch in May or April with the testing project first in 4 cities.
The Digital Yuan
Digital yuan is a digital project for Yen currency in a digital system. China’s plan is to make payments in China with fewer fees in the transaction and quicker payments. The project for digital currency has begun in 2014, with The Chinese Central Bank started the project with a study for a potential national digital currency.
In 2017 the State Council approved the project for a potential digital currency. Four months ago the digital yuan project started first with “internal testing”. The internal testing would involve four state banks, three telecoms companies, and Huawei. Tencent’s “WeChat Pay”, was planned to take part in the internal testing with its wallet provider.
Another report published 2 months ago with 22 companies involved in the testing phase. The plan with the digital currency is projected with two phases. The first phase involves the commercial banks converting the bank deposits funds into a digital currency. In the second phase, central banks would distribute the digital currency funds to the clients.
The four commercial banks involved in the digital yuan testing project are The Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China, and Bank of China. And the three telecoms companies are China Telecom, China Mobile, and China Unicom.
The digital currency is projected to surrogate the physical cash payments with 93% of payments on China completed by Mobile phones. Central’s Bank Digital Currency (CBDC) predicts that within 2 or 3 upcoming years, 30% to 50% of physical cash payments will be replaced with digital payments. Digital currency is projected that central banks will exchange digital currency funds with banks and payment operators.
Digital Yuan vs AliPay and WeChat
AliPay and WeChat Pay control most of the payments with mobile payments. AliPay and WeChat Pay requires a connection with a bank account and doesn’t offer offline payments p2p touch payments. Unlike AliPay and WeChat Pay, the Yuan is expected to offer the option for offline payments with p2p touch payments.
Digital yuan wouldn’t need bank accounts linked with its wallet and would offer much anonymity. The digital currency wouldn’t charge a monthly maintenance fee as AliPay and WeChat Pay does. The new yuan is planned to take part in some McDonald’s and Starbuck’s location in China.
The digital currency project of China would improve the payments environment, however, there are concerns about the digital yuan currency. Expert payment firms have raised issues for The People’s Bank of China (PBOC), about the lack of transparency of the project with central banks. Payments by clients with digital currency would appear as a transaction only. The transaction would hide the sender’s identity with full anonymity and privacy.
And this has raised concerns about the operation scheme and how digital payments could boost the money laundering or crimes. With no tracking of the transaction, laundering and crime activities would become more usable. Another issue is with the scanning code of many payment platforms like WeChat Pay and Alipay and how it would work it’s not known yet.
There’s some debate on the effect of digital currency in banks and other financial service providers as physical cash exchanges. With no maintenance fees, lower transaction fees, and quicker payments, banks would have to offer more competition and tight fees and affecting the financial situation of the bank.
The launching date
The chief executive of Sino Global Capital, a China-focused fund related to crypto and blockchain recently published some details about the digital yuan project. On a Twitter post, he stated “A DCEP wallet application from a test that included the Agricultural Bank of China was inadvertently published. It’s important as it’s the first time we’ve seen pictures of the working DCEP wallet application, which is rumored to have a targeted late 2020 release date”. The competition of the digital yuan would be the digital dollar and digital euro which is also trying to get released in 2020.
Graham said that the digital yuan is preparing to be tested in four regions: Suzhou, Chengdu, Xi’an, and Shenzen. The reason why these 4 locations were chosen for the digital yuan test-program according to Graham has to do with the “technology talent” developed in these locations.
Graham didn’t give detailed information about when the Beijing government will launch. But that with the progress made during the past years and testing phase beginning soon, he said that it could speed the launch date of the digital yuan much sooner.
With the testing of the digital currency ongoing in some locations, there’s still some time when we can see the digital yuan fully integrated for all citizens on China. However, with the digital yuan backed by China’s central bank we could see the project going faster and a launching date at the beginning of 2021.
Image via pixabay, Writer Behar H.