From being labeled impractical to nearing mainstream deployment, the digital yuan can transform the global economic landscape.
With each passing day, the list of nations actively exploring the idea of central bank digital currencies (CBDCs) is continuing to grow at a rapid pace. While China’s digital yuan project may be the one that everyone talks about the most, in recent months, countries like The United Kingdom, Sweden and Japan have forged ahead with their own CBDC research and/or testing.
That said, the digital yuan project is head-and-shoulders ahead of any of its contemporaries at this point, owing to the simple fact that Chinese authorities have already completed many beta-testing rounds of the currency across a number of major regions including Beijing, Chengdu, and Hong Kong’s greater bay area.
In fact, just to highlight how far along the project has actually come, reports indicate that the citizens of Suzhou city can now pay for their daily travel on the city’s fifth line using the digital yuan.
A brief overview of the e-CNY project
Initially thought of as a tool that would help China digitize its economy amid the then-worsening COVID-19 situation, initial news reports simply claimed that a select group of state-run commercial banks within China were performing internal tests of a digital currency wallet that had been designed to house an called the “digital yuan” — known as the Digital Currency Electronic Payment, or DCEP.
Soon after, however, it became clear that the scope of this project would extend way beyond simple bank transfers, especially as confirmations of successful pilot trials across major metropolises like Beijing, Xiong’an New Area, Shenzhen, Suzhou and Chengdu started to surface.
In terms of how testing was carried out, most recently, authorities doled out the digital yuan — estimated to be worth around $6.2 million — to people living within the municipal limits of Beijing city via a lottery system. Basically, residents of the Chinese capital were given the opportunity to register and win one of 200,000 packets containing 200 digital yuan ($31.34) each.
The digital cash was delivered using an app that, according to various reports, has been designed to facilitate real-time monetary transactions, albeit at certain select retail outlets for the time being. Similar CBDC lotteries have also been held across many of the aforementioned destinations, clearly showcasing China’s resolve to release its digital token for mainstream utilization.
Lastly, Yao Qian, the former chief of China's CBDC efforts, recently went on record to say that as we move into an increasingly digitized future, a vast majority of all CBDCs will eventually transition (or at least start) to support public blockchain networks like Ethereum, thus hinting at the possibility of the e-CNY eventually becoming compatible with Ether (ETH).
The proof is in the pudding
Success stories relating to China’s CBDC are now becoming more common. Just recently, China’s Xiong’an New Area, which is situated a little over 50 miles from Beijing, had the local government paying its workers using the digital yuan. In fact, the entire region seems to have adopted the Blockchain Fund Payment Platform to help digitize its local economy.
In addition to this, the public transportation authorities of major Chinese cities, such as Chengdu, are committed to expanding their payment setups to include the digital yuan, potentially spurring the mainstream rise of e-CNY.
Meanwhile, some of China’s leading retailers have also been participating in the e-CNY adoption drive. Furthermore, Alibaba’s online grocery services including ele.me, Tmall supermarket and Hema grocery stores have started allowing chunks of their clientele to pay for their goods using the digital yuan — essentially enabling the sovereign digital currency to gain access to a combined consumer base of more than one billion users.
China’s crypto policy aims to bolster e-CNY adoption
Over the last few years, China has taken an extremely hardline stance in terms of governing its local crypto market. In recent months, local authorities seem to have gone into overdrive, made evident by the recent cryptocurrency mining ban.
In the following days, the government also issued orders prohibiting financial institutions, ranging from banks to online payment providers and everyone else in between, from indulging in any sort of cryptocurrency transactions — including registrations, trading, clearing and settlements.
Kevin Zhang, vice president of business development at Foundry, an investment company focused on digital assets mining and staking, told Cointelegraph that in his view, China and the CCP are focused on maintaining “social stability,” even though Bitcoin mining and crypto financial flows/volumes are mere drops in the bucket when it comes to the grand scheme of things, adding:
“It is a noisy distraction that is constantly hogging attention and undermining the perception of China’s control over capital outflows and financial regulation. This all came to a head when crypto/Bitcoin started pushing all-time highs and the CCP was celebrating its 100 year anniversary.”
Providing his thoughts on the subject, Nishant Sharma, founder at BlocksBridge Consulting, an international consultancy focused on the cryptocurrency mining industry, told Cointelegraph that China is still the biggest market for cryptocurrencies, such as Bitcoin (BTC), outside of the United States. He added: “Since the ban on crypto exchanges in 2017, cryptocurrencies are traded in China in a peer-to-peer fashion and Chinese citizens continue to use cryptocurrencies, such as Bitcoin, both as reliable stores of value as well as speculative investments.”
Where do other countries stand with their CBDC programs?
The Chinese digital currency experiment seems to not have gone unnoticed, because recently, the Bank of Japan announced that it had successfully commenced a year-long trial of its digital yen. The goal of the project seems geared toward assessing the long-term technical/monetary viability of releasing a mass-scale CBDC within Japan’s borders. The pilot is likely to conclude by Q1 of 2022.
Sweden’s central bank, the Riksbank, after months of apparent inactivity in relation to its e-krona project, published the results of its successful phase-1 testing. Similarly, since the start of 2021, the Bank of England has also expressed a strong desire to develop its very own digital currency.
Related: The CBDC promised land: As some governments falter, others press on
In the meantime, nations like the Bahamas and Cambodia have gone on to issue their own CBDCs: the Sand Dollar and the Bakong, respectively. However, the adoption of these assets has been slow to come by, an issue that the People’s Bank of China (PBoC) seems to be tackling heavily in anticipation of full deployment through its various e-CNY airdrops and initiatives.
Ultimately, China is setting on a very unique path to adopt a CBDC within its borders. While being very much against cryptocurrencies and even crypto mining, China is at the forefront of the CBDC race and is eager to adopt the technology that underpins both solutions. In the meantime, other countries will be watching closely, but it seems that most are opting to take a different way to implement a sovereign digital currency.
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