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China is putting digital currency on trial 

May 02, 2020 | 18:51

China becomes the first nation in the world piloting government-backed digital currency, which starts in some regions before being introduced to the public, China Daily earlier this week reported.

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china is putting digital currency on trial
Illustrative photo by Reuters.

The China’s newspaper cited People’s Bank of China, the central bank as informing that the move is aiming at replacing the circulation of paper notes and coins.

The digital currency trial is conducted in a closed environment without any connection with the available state’s currency issuance and circulation system. Pilot programs have been launched in Shenzhen, Suzhou, and Chengdu, as well as in the Xiongan New Area, Hebei province, said a senior official from the digital currency research institute of the PBOC, who did not want to be identified.

Some of the payment scenarios related to the Beijing 2022 Winter Olympics are also undergoing tests, he said.

"In the short term, the central bank's digital currency will not be issued in large amounts for the public and the velocity of the money in circulation will not be influenced or lead to an inflation surge," said a statement on the PBOC's official WeChat account on Saturday.

The PBOC will be the sole issuer of the "digitalized renminbi", and will originally offer the digital money to commercial banks or other operators, which is still in a centralized issuance system. The public can transfer the money in their bank accounts to the digital version and deposit the same in "electronic wallets", the official said.

To avoid excessive money issuance, commercial institutions should set aside provisions equivalent to their digital money holdings, he said.

Sina News said the currency would be used to subsidise transport in Suzhou, but in Xiong’an the trial primarily focused on food and retail.

A screenshot purported to be of the app required to store and use the digital currency has been circulating since mid-April.

Some reports also claim businesses including McDonald’s and Starbucks have agreed to be part of the trial, however in a statement Starbucks told the Guardian it was not a participant. McDonald’s been contacted for comment.

Digital payment platforms are already widespread in China, namely Alipay, owned by Alibaba’s Ant Financial, and WeChat Pay, owned by Tencent, but they do not replace existing currency.

Xu Yuan, associate professor at Peking University’s national development research institute, told broadcaster CCTV that because cash transactions were offline and transaction data from existing payment platforms was scattered, the central bank was unable to monitor cash flow in real time.

“Although there is little change from the perspective of user use, from the perspective of central bank supervision, future forms of finance, payment, business and social governance etc, this is the biggest thing ever.”

On 17 April, the digital currency research institute at the People’s Bank of China said the research and development of a digital renminbi was “advancing steadily” and top-level design, functional research and development, and debugging had largely been completed, according to a CCTV report.

Different from Alipay and WeChat Pay that rely on the internet, the technology used by the PBOC allows the digital currency to be exchanged without the internet, just like using physical cash.

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