The People's Bank of China shocked the financial world with the breakthrough of China's Digital Yuan. This article will discuss this central bank digital currency (CBDC).
What is China's Digital Yuan?
Yuan digital ore-CNY isAn innovative breakthrough from the People's Bank of China (PBOC), this central bank digital currency (CBDC) is not just a replacement for fiat money, but a giant leap towards the future of payments.safe, efficient and inclusive.
Digital yuan is not just an ordinary digital payment tool. Its presence signals a revolution in China's financial system, with the aim of:
- Updated retail payment structure
- Spur economic growth
- Encourage financial inclusivity
- Strengthening the central bank payment system
- Opening opportunities for international cooperation
- Provides protection against systemic risks
Backed by sovereign credit and The People Bank of China (PBOC), digital yuan is a legal and trusted means of payment. The PBOC is committed to collaborating with other countries, following the G20's direction, and developing cross-border payment schemes that respect the sovereignty and regulations of each country.
Growing Adoption and Use
Although still relatively new, China's Digital Yuan has shown rapid growth. In the first half of 2023, the digital yuan transaction value in China reached 1.8 trillion yuan (equivalent to $250 billion), an 18-fold increase compared to the launch period in 2019.
The application of digital yuan is increasingly widespread, with several examples:
- Acceptance of digital yuan payments for public transportation in Jinan from July 1, 2023
- Improved support for digital settlement by Shanghai Clearing House
Digital Yuan's Journey: From Conceptualization to Implementation
2014-2016: PBOC begins research on digital currencies and electronic payments, forming a special team to design prototypes and build the foundation of a digital payments ecosystem.
2017-2019: The PBOC is increasing its research, focusing on the legal framework, technical aspects, and potential impact on financial stability and monetary policy. A closed pilot program was launched in several cities to evaluate the effectiveness of the digital yuan in real-world scenarios.
2020-2021: The scope of the pilot program expanded to major cities such as Xiongan New Area, Suzhou, Chengdu, and Shenzhen. Wider trials were conducted, including a lottery that distributed digital yuan to citizens for use at select retail outlets.
2022-Present: The PBOC is focused on developing a digital yuan ecosystem, prioritizing interoperability with existing payment platforms.
Active participation in international partnerships is undertaken to promote cross-border use of the digital yuan and ensure regulatory compliance. Integration smart contract It also seeks to facilitate complex and automated financial transactions in various sectors.
Understanding How Digital Yuan Works
Backed by the PBOC, China's digital Yuan is operated through payment service providers, with a focus on:
- Enhanced privacy and anonymity
- Sufficient tracking capabilities to prevent illegal financial activities
Two-Level Operational Structure
- First Level: PBOC
- Second Level: Institutions such as state-owned banks and online banking entities are responsible for user registration and service provision.
Easy Access and Use
- Access via applications provided by commercial banks or e-CNY applications in some cities in China
- Foreign users can top up wallets and make transactions in major urban centers
- Digital yuan wallets are available in different levels of KYC verification and transaction limits
Comparing Digital Yuan with Third Party Payment Applications
- Centralized publication by the PBOC: Ensure the status of legal tender such as physical yuan.
- Direct issuance by the central bank: Improve financial efficiency and strengthen central bank authority.
Challenges and Promising Future Prospects
Despite its huge potential, the digital yuan still faces several challenges:
- Concerns about data security
- Regulatory barriers
- Interoperability issues
Addressing these challenges requires joint efforts from policymakers, international stakeholders and technology partners. With its credibility and reliability continuously strengthened, the digital yuan is poised to become the primary medium of exchange and storage of value, both in China and globally.
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