China first looked to embrace cryptocurrencies as part of its desire to become a developed economy. The country inaugurated its first bitcoin exchange in 2011, barely two years after bitcoin was created. China was a major role in the bitcoin sector by 2016, as both a trade hub and a manufacturer of mining equipment.
In government-led experiments last year, the digital yuan landed in the wallets of average consumers after nearly eight years of development. The central bank distributes the china coin to users through six large commercial banks; generally through a wallet app. Users may make payments by scanning QR codes or via wearable gadgets, such as physical wallets with digital yuan chips manufactured by one of the six banks.
Apart from being in the forefront of digital currency deployment, China’s government has three key aims in designing and promoting sovereign virtual money. It wants a better understanding of how money moves across the country, which is disguised in cash transactions and even mobile payments, where data is held by private companies.
Its goal is to reclaim control of payments, which are increasingly being facilitated by private companies. Both businesses have been subjected to antitrust investigations and pressure to divulge data with the government as part of a larger regulatory assault on tech. It aspires to improve the yuan’s international status over time (easier said than done if all else remains the same).
Many people doubted that a government-developed china coin wallet could compete with the payment methods already available from China’s IT giants. However, the digital yuan has a vital feature that might make it more appealing, particularly to rural users: people can use it even if they aren’t connected to the internet by just tapping two digital-yuan-enabled phones together.
Concerns About Digital Yuan
The rest of the world will see the digital yuan for the first time at the Beijing Winter Olympics next year, and China’s government has been busy preparing for it. ATM machines will be available during the Games to change foreign currencies, including US dollars, into virtual Chinese money, which will be carried in the form of a digital yuan wallet card.
The route to globalization, however, will not be simple. For one thing, China’s rigorous currency rate controls have already hampered the physical yuan’s widespread adoption, and this policy will continue to deter people from embracing the digital equivalent. The problem of some persons holding renminbi abroad wanting to sell it and swap it for dollars is not solved by a digital yuan.
The digital yuan’s potential users may be concerned about Beijing’s reputation for peeking into individuals’ lives through applications. Surveillance worries may result in governments urging its players to avoid using the digital yuan during the Games; certain legislators are already doing so. Unlike fully anonymous cryptocurrencies, the digital yuan will have controllable anonymity because users can only receive the digital wallet by registering with their cellphone number. Because people in China must register their phone numbers with their true names, that pledge may not be very credible. According to Mu, the central bank executive, service providers will not transmit user information to the bank in general (link in Chinese), making wallets registered with mobile phones fully anonymous. For foreign corporations, though, the greater culture of control is a source of concern.
