Hardly any other nation has made as much progress as the People’s Republic of China with regard to the potential introduction of an official digital currency. It comes as no surprise, then, that the new digital yuan is soon to be granted the privilege of becoming an officially recognized means of payment. The corresponding draft law has already been prepared…
China is proving to be the undisputed leader in terms of digital currency adoption from a global perspective. A variety of tests in recent weeks and months have produced mixed results, he said.
According to a report published by SCMP this week, the People’s Bank of China (PBoC) had presented a draft law last Friday, the implementation of which would give the digital-electronic currency and payment system a legally legal status at home.
For the first time in the country’s history, the digital yuan would thus be officially included in the sovereign fiat currency system of the People’s Republic of China. Until now, this project had been subject to one of the highest levels of secrecy, which had also affected the test procedures now being carried out.
Earlier reports on this topic had repeatedly pointed out that the digital yuan would function in a very similar way to popular and well-known stablecoins in the cryptocurrency world. After all, plans to technologically build the digital yuan were made public as early as a year ago.
At the time, Facebook was still hopeful of getting its ambitious plans to launch its own cryptocurrency called Libra off the ground. However, sand quickly got into the gears of this project after founding partners from the corporate sector backed out due to a lack of confidence in the project’s ability to be implemented.
At the same time, fears arose that American regulators might block a Libra launch, as happened, for example, in the case of the cryptocurrency Gram from the encrypted messenger service Telegram. Now, however, back to the events observed in the People’s Republic of China. At SCMP, it is stated as follows:
“The draft law would prohibit any type of third party, under penalty of law, from manufacturing, issuing, and/or circulating those digital tokens backed by the official national currency, the yuan, with the aim of replacing the Chinese renminbi in the market.”
Meanwhile, the Beijing government seems to be in quite a hurry to cement the legal status of a digital yuan. Over the past month, numerous testing procedures have taken place in cities including Suzhou, Chengdu, Xiongan and Shenzhen, including the most extensive testing procedure to date in Shenzhen.
After all, an amount of ten million yuan (around 1.5 million US dollars) was circulated in Shenzhen in the form of the new digital currency in the course of this. This amount was distributed proportionally to a total of 50,000 randomly selected test persons.
SCMP quotes one of these test persons as saying that a use of the digital yuan was associated with the same speed as a use of Alipay. But there also seem to be hairs in the soup. This is because regional media had recently published a number of reports involving negative reactions.
The Beijing government had so far always denied that the digital-electronic currency and payment system would become a competitor of Alipay and WeChat. However, it was precisely this question that had played the main role in the tests conducted among users over the past weeks and months.
The Asia Times refers to a test person named Zhong in its previously linked report. According to the report, both Alipay and WeChat have been on the market for a very long time. The new digital currency is similar to a use of Alipay and WeChat, which is why the start of a testing and verification process is at a very late stage.
However, SCMP calls a spade a spade to draw attention to the following fact: The Beijing central government has already made it clear that the goal of introducing and using the digital-electronic currency and payment system in China involves substituting cash.
At the same time, he said, the political leadership’s other main concern is to keep control of the currency in its hands and to push for the use of the yuan in international trade and payments. In spite of all this, counterfeit wallets have already appeared – and thus the very aspect that the PBoC is trying to prevent at all costs by means of its draft law.
To achieve the goals named above, the digital-electronic currency and payment system will have to prove as efficient as the cash system. Should a complete substitution of cash by digital money indeed occur, the automatic question arises as to how such a digital money system could be maintained in the event of a power failure or possible signal problems.
For that particular moment, probably not at all. However, it is precisely such questions that will be of greatest interest to potential users of a pure digital currency in order to have confidence in this technology and its use. It will also be interesting to see what would happen to established and very functional competitor systems such as Alipay or WeChat if PboC’s new digital currency system had difficulties asserting itself against these existing systems.