This digital currency is being referred to as the “digital Yuan”, but it’s also known as the Digital Currency Electronic Payment (DCEP) system. The new system will be different from using an online bank or debit card in that it does not necessarily require any link to paper money to work, and would be operated from one central bank rather than multiple.
One launched, users would download an electronic wallet which would be linked to a bank card.
Then, the money would be taken from this linked bank account and converted into digital cash. But there is also an option not to link any bank account at all, South China Morning Post reports.
The whole thing would be operated by China’s central bank – the People’s Bank of China (PBOC).
The trials for the currency are currently being run in four different cities across China, but Bloomberg reports that a wider – but possibly complete – rollout penned for the Beijing Winter Olympics in 2022.
The currency will be operated by the People’s Bank of China.
Xu Yuan, a senior researcher with Peking University’s Digital Finance Research Centre, told SCMP that China’s digital currency may be one “the two defining historic events of 2020” along with the coronavirus pandemic.
Generally, the new system would make it easier for the PBOC to trace cashflow and credit data, Xu added.
However, it isn’t clear how or if this would differ from any tracking carried out on traditional online banks.
Former Bank of China President Li Lihui said in a live streaming talk on People’s News on May 5 that the digital Yuan “can become the dominant form of currency,” but that this would depend on whether it allowed for greater efficiency, lower transaction costs, economic scale and general acceptance, Cointelegraph reports.
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The digital currency is different to cryptocurrencies such as Bitcoin.
But for all the talk of revolutionising payment systems, China’s digital currency is not to be confused with cryptocurrencies – of which Bitcoin is probably the most famous type.
Both currencies will be digital and operate via digital wallets, but the most important difference is how the systems are regulated.
China’s DCEP system will be operated and tracked by a central bank, cryptocurrencies like Bitcoin work in the complete opposite way.
Cryptocurrencies are completely decentralised – meaning that the whole system is run publicly by a network of computers.
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Bitcoin prices crashed in 2018 after reaching a peak of nearly $ 20,000 per Bitcoin. It’s currently $ 9,520.
Proponents of cryptocurrencies say that these payment systems allow for greater anonymity and offer a way to pay outside of central banks or governments.
But on the other hand, cryptocurrencies are used increasingly for criminal purposes such as illegal drug purchases, the NY Times reports.
The Cboe Global Markets exchange, which became the first in the US to trade in Bitcoin futures.
In fact, China has been cracking down on its use of Bitcoin in recent years.
Developers of cryptocurrencies often hold fundraising events known as initial coin offerings, which have been banned in China, according to CNBC.
China has been exploring the possibility of a digital currency since 2014, SCMP reports.
In other finance news, head of Tesco finance Alan Stewart has announced his intentions to step down in April next year.