Digital currency is the modern form of how transactions are made and in the future, digital currency usage will only grow. Countries will continue to roll out digital currencies into their economies and ultimately change the need for physical currency.
China created the digital currency known as the digital yuan in 2014. The country has plans this take this currency to a global level.
What is Digital Yuan?
Yuan is the current form of physical currency in China and they are planning to merge into being fully digital. In terms of its value, 1 yuan is equivalent to 0.15 dollars in the United States. Although the digital yuan was created years ago, there is no direct time on when the currency will become fully digital. China has made the priority to test it out in the economy and conduct trials on disbursing it.
Efforts Made by China to Test Currency in the Economy
Trials are the current focus for the digital yuan until it is completely rolled out across the country. Some forms of disbursement involve payroll and lottery. In terms of using digital yuan, there are payment platforms set up to accept it as a form of payment.
Distribution of Digital Yuan by Payroll
A city about 60 miles Southwest of Beijing called Xiong’an has made the decision to pay wages in digital yuan. It was considered to be China’s first effort to pay wages with this form of currency.
Lottery Distribution
Several cities from China have conducted lotteries to their residents to roll out millions in digital yuan. Beijing has disbursed the equivalent of 6.2 million dollars to over 200,000 residents using two banking apps. The 200,000 residents who won the lottery drawing known as red packets each received 200 digital yuan, totaling 40 million renminbi. All the residents had to do was download one of the two banking apps and simply apply. The currency disbursed to recipients can be used with selected merchants who are set up to accept that form of payment.
Chengdu is another Chinese city that disbursed millions of digital yuan. They handed out 40.2 million in digital yuan. Other cities have begun to disburse digital yuan to their residents in these trial experiments.
These Chinese cities have begun these trials this year but it is expected to ramp up before the year is up.
Using Payment Platforms For Digital Yuan Usage
It is said that China is using the Blockchain Fund Payment Platform which is what may be used to fund payroll in Xiong’an. Several other payment platforms are now set up to accept digital yuan as a form of payment.
All of these approaches have been successful thus far with the rollout of digital yuan. The central bank has even considered allowing foreign visitors during the Beijing Winter Olympics of 2022 to be permitted to use this currency. Trails are also being conducted with commercial banks throughout China.
Another platform called Inthanon-Lionrock is a central bank project designed for cross-border payments. This platform was created by Asian entities Hong Kong Monetary Authority and the Bank of Thailand. Some of the countries involved in the cross-border payment project involve Singapore and United Arab Emirates (UAE) in addition to Thailand and Japan.
The Inthanon-Lionrock project was created to improve international trade settlements, cross-border transfers, and capital market transactions. It will help with costs and common issues with transfers across borders.
Digital Yuan Should Not Be Viewed As Cryptocurrency
Cryptocurrency like bitcoin is decentralized as opposed to the digital yuan. The digital currency is centralized by the People’s Bank of China (PBOC). The overall goal of the PBOC is not to make digital yuan a form of cryptocurrency, but to digitalize all banknotes and coins that are in circulation in China.
What It Will Take to Make Digital Yuan Global
China wants to be a global superpower for fintech and blockchain technology. China has been testing out trading platforms in different nations to make the digital yuan a global currency. However, there is a legal framework to be set up for digital yuan with financial regulators.
Other efforts need to be achieved to get digital yuan globally adopted. Trading partners or regional financial hubs will need to work in the country of China so that the digital yuan can have a global platform. Digital yuan will also have technically, legally, and financially compatible with other countries and the digital currency they have.
China Aims to Be a Fintech Giant
China has been dominating the Fintech market globally and is continuously taking steps to remain on top. It should be clear the initiative behind the digital yuan is not to overpower the euro or US dollar. The country of China wants to have a currency that is just as global as those two currencies.
Author Bio:
Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of the State Bar of California. In 1998, he graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for the Oak View Law Group in Rocklin, California.
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