China launches official digital currency backed by central bank

China launches official digital currency backed by central bank
China is planning an official launch of a new yuan currency that will serve as a digital version of the official currency. It is not a cryptocurrency like bitcoin but an official digital currency that uses the Chinese central bank platform. Each digital yuan will eventually replace a physical yuan, whether banknotes or coins.

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Beijing’s move is designed to meet a number of strategic-economic needs. The first is to monitor payment, not necessarily to prevent dissidents, but also as a means of monitoring the economy. For example, the currency can be programmed as an example, with the help of an expiration date that can be used to encourage consumption.

Beijing aims to replace physical notes and coins with digital ones Photo: Bloomberg

The second need is to deal with US sanctions. These are usually based on the blocking of international remittances. The digital yuan is not protected under international money transfer mechanisms such as SWIFT, making it possible to bypass Washington and its blockers.

In addition, the new yuan can easily curb the black economy or at least reduce it greatly. The Chinese central bank will be able to track every transfer or payment made with its help and will know online where, by whom, when and for what purpose the payment was made.

Digital Yuan works just like any online payment system like Beat, Apple Pay or PayPal. It is based on an app or a loaded card. The application has a picture of the background friend Mao, as in the official banknotes. The card does not require a network connection, and can be used as a regular credit card.

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Around 100,000 users have already downloaded the app and the government has also given them a free amount to pay to test the system. Free money can ironically be spent mostly at McDonald’s or Starbucks.

According to the Wall Street Journal, the ultimate goal is to replace all physical coins and bills with the digital yuan. Which would have made China the first country to do so if no one had sidelined it earlier.

Digital Yuan has been in development for almost seven years. This is not the same as for example, Bitcoin or Ethereum. There is no anonymous or decentralized payment infrastructure here, and is mostly supported by a central bank that issues it as the official currency.

Today there are about 60 countries that are developing a digital version or their official currency. For example, Sweden is already testing digital caravans. The Bahamas also has a digital currency called the Sand Dollar which is available to all residents.

Even the US, once strongly opposed to online currencies, realizes that it will likely have to offer a digital version of the dollar. US Treasury Secretary Janet Yellen even said that “it is a sensible move for central banks”. Federal Reserve President Jerome Powell also said that this is a high-priority project.


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