China’s Digital Yuan Undergoes Testing as a Payment for Government Workers
The future of digital currencies is always a hotly contested topic—especially when governments are involved. But now, the digital yuan is being released as part of employee’s paychecks across four Chinese cities.
The digital yuan has once more gained traction on the internet. This government-sponsored digital currency, which has been in the works since 2014, is currently being tested in select Chinese cities. Starting in May, government workers will be receiving a portion of their paychecks in the digital currency through an app.
Beyond current testing, there have also been rumors that the government is planning to launch the e-currency for the 2022 Beijing Winter Olympics.
With all this hype on a government-sponsored digital currency, it’s no wonder why a simple screenshot of an internal mobile application showing a digital banknote, developed by the Agricultural Bank of China, quickly got netizens talking around social media.
Speculations are high on how the digital yuan can impact day to day life, and whether this is the first step to a completely cashless society.
Li Lihui, the former President of the Bank of China, believes that the digital yuan is capable of replacing cash in the future—provided that it meets a few conditions. Li explained that the success of the transition “depends on whether it [the digital yuan] has greater efficiency, lower transaction costs, enough economic scale with commercial value, and people’s acceptance.”
The digital yuan is similar to regular cryptocurrencies in that it uses the same technology that permits anonymous transactions.
However, the similarities stop there: unlike cryptocurrencies, there will be a limit to the amount and the frequency involved in these transactions. In addition, digital yuan is issued and supported by the Central Bank of China. It is not an independent currency; it is a digital version of the Chinese Renminbi, which is the country’s official currency.
Even though it cannot completely be classified as a cryptocurrency, the outlook for its impact on society and the economy is positive. A central bank digital currency is expected to facilitate more efficient transactions for customers and affords more transparency for the government.
Many believe that digital currencies offer a better mode of transaction compared to current e-payment systems, such as AliChat or Wepay. With the latter, users still need to fund their digital wallet using traditional currency.
The digital yuan eliminates this extra step because users only need to download an app and then transfer the digital yuan into the wallet. These funds will have no equivalents in paper banknotes.