The officials have tested the new national currency in four cities
Thus, the Central Bank of China has notified everyone that the outcome of the first test does not indicate that a new digital currency has been officially launched or is ready for use by the general public.
In recent weeks, the first images of the new national cryptocurrency have already been published on the web, and official confirmation of the experiment has already been received from four regions of the country.
Xiongan City (one of the cities where development actually takes place) is presented as a modern Chinese technology center that has attracted the attention of many industrial giants. Located on the outskirts of Beijing, it looks like the smart city of the future, which already has highly developed infrastructure and communications systems. Beijing hasn’t announced when the digital yuan will be officially launched. However, the authorities are already testing a new e-currency, giving members small amounts of it to spend in their stores and restaurants.
The E-CNY, or digital yuan, is expected to weaken the dollar’s dominance and grant China monetary sovereignty. Experts believe this experiment by the Chinese government could “turn the global financial system upside down”.
Understanding how digital currencies can reorganize the foundations of the financial system, China has taken the lead in developing such a currency. Money in China may now be completely digital, as credit cards and payment apps eliminate the need to carry banknotes and coins in wallets. However, these are the only tools that allow you to transfer cash electronically.
China continues to work hard on fully virtual legal tender.
How the Digital Yuan will be operated?
When Bitcoin was first launched back in 2009, economic officials in most countries downplayed the value of the new currency, not taking it seriously. The Chinese especially looked at her with certain disbelief and even banned cryptocurrency trading for a while, but after researching aimed at creating its own virtual money.
Unlike Bitcoin, E-CNY will be operated by the People’s Bank of China, therefore it most certainly will not provide users with complete anonymity, which allows the authorities to track financial flows in real-time. The new cryptocurrency will help identify suspicious transactions and tax evaders, as well as automatically collect fines.
Before providing the digital yuan to the population of a country, businesses will have to offer the central bank some kind of monetary guarantee to prevent inflation from over-selling currency. China is making rapid progress in implementing this project, which is considered a priority. In fact, despite the difficulties associated with the coronavirus, the Central Bank of China has further accelerated the development of the currency.
Dollar dominance is under threat
Digital currency paves the way for entirely new monetary policy instruments. In the E-CNY experiments, the “expiration” of money was limited, and in the future, the authorities could theoretically, for example, gradually reduce its value in order to encourage people to circulate their funds faster during an economic downturn.
Chinese officials also speculate that the token will be used in international transactions, which is viewed as a threat to the dollar’s dominance in the long term. Currently, the US currency is used in at least 88% of such transactions, while the Chinese yuan is used in just 4%.
E-CNY transfers do not require a bank account. They will take place outside of the SWIFT system used by commercial banks and to which Washington has access. Needless to say that members of the administration of US President Joe Biden see the digital yuan as a greater threat than North Korean nuclear bombs.
The digitization of cash carries a number of risks and challenges. Above all, it will be important to develop a dedicated regulatory framework and implement a solid supporting technological infrastructure that can prevent external risks, such as those associated with natural disasters, for instance.
The national cryptocurrency will use blockchain technology, but unlike Bitcoin, it will be launched and distributed centrally by the People’s Bank of China through a closed system that gives citizens a security guarantee. The new digital currency should also be simple and understandable for users and close to the usual cash. As stated by the Central Bank, the transfer of money will be possible without an Internet connection.
The Digital Currency Research Institute of the Central Bank of China has confirmed the continuation of the work but considers it necessary to take into account all possible critical points before the official launch.