China has now been reported to be working to become the first nation which will be implementing a total central-bank digital currency (CDBC) into limited use.
According to Citic Securities which is a China-based brokerage firm, the Chinese Government is now actively testing the world’s first digital currency system by paying for half of the entire cost of travel for government workers in certain cities in the nation.
It is expected that in the month of May of 2020, the Chinese cities Shenzhen, Suzhou, Xiongan and Chengdu, and the Xiangcheng district of Suzhou will begin to test this digital currency as well.
This move from the Chinese government came in the light of recent events related to the worldwide outbreak of the coronavirus which originated in Wuhan. All the banks in China had to literally start cleaning all the paper currency because of the suspicion of them being contaminated by the deadly COVID-19 virus.
Theoretically, users of the world’s first digital currency would be able to use and transfer cash only with Bluetooth without requiring an internet connection.
Digital Currency: What’s China Up To
If the digital currency in discussion comes into existence then it could potentially give the Chinese government a very powerful tool to easily monitor and manipulate spending. It would also allow China to enjoy an unprecedented amount of power as it will be able to track all the money in circulation, eventually making it very difficult for Chinese citizens to launder money or evade taxes.
The Central Bank could also implement coding to control how the money will be used. For example, if it issues CBDC aka Central Bank Digital Currency to a commercial bank for lending on to small businesses as a loan, then it could ensure that the money is activated only after the amount has been transferred to the small firm. Cash would no longer be an alternative to bank deposits, too.
In 2019, the mobile financial transactions in China accounted for four out of every five payments. According to Citic Securities, the total size of China’s digital currency over the coming years could definitely reach 1 trillion yuan or about 140 billion U.S. dollars. This would essentially mean about one-eighth of China’s cash would already be completely digitized. To put things into context for comparison, the current total market cap for all digital currencies, including popular Bitcoin cryptocurrency, is close to about US $200 billion.
Now, given the risk involved in processing this change from traditional currency to digitised currency, China could opt for rolling it out in phases gradually.
It is being estimated by the firm Citic Securities that it could easily take several years before China’s digital yuan could replace just a meagre 10 per cent of all physical cash in the country.
In mid-April, a photo of this proposed Chinese digital currency plan leaked on the internet as well but it hasn’t yet been verified for authenticity.
The above image is supposedly from a test or pilot version of a mobile app developed by the Agricultural Bank of China which is one of China’s largest state-owned banks, to be used by some Chinese Communist Party members in the currency’s test run in May.
Now it remains to be seen how successful will the adoption of this digital yuan will be once rolled out in its entirety. We will keep you posted on all future developments. Stay tuned.