China Has Created Its Own Digital Currency: Understanding Digital Yuan

Blog / Digital Yuan: Understanding China's Digital Currency

The blockchain-backed digital currency project, which the People's Republic of China has been working on for seven years, has finally been completed. This digital currency introduced by the People's Bank of China (PBOC) is called the Digital Yuan. 

What is Digital Yuan? 

Digital Yuan is a state-sponsored virtual currency designed to track all currency movements. Thanks to this currency, it is reported that the state can closely follow personal finance movements and learn all the details from what a person purchases to where to buy. 

To put the project more clearly, we can explain why China's central bank converted physical money to digital yuan and shifted it to the economy. After this definition, the first question that comes to mind is how the Digital Yuan is different from other digital currencies. 

How to Work Digital Yuan? 

The Digital Yuan project has been handled in two different stages: distribution and expenditure. Distribution means that the PBOC will distribute the digital Yuan to commercial banks. Commercial banks will be responsible for taking the digital currency into the hands of consumers. Also, consumers will have a service where they can exchange coins for digital Yuan. 

The Chinese local government has provided millions of dollars worth of digital currency to many cities. The digital Yuan was distributed to users through an application. This includes users downloading the app so they can have the currency. First,, one of my largest e-commerce organizations in China, got involved in the experiment by enabling its customers to purchase products over the digital Yuan. 

Differences Between Digital Yuan and Existing Cryptocurrencies 

The biggest difference that distinguishes Digital Yuan from other cryptocurrencies is that it has legal status. The digital Yuan currency can be used as a payment mechanism or positioned as a legal tender. 

However, we mentioned that other cryptocurrencies do not have a centralized structure. However, the Digital Yuan currency has a state-formed centralized structure. Multiple assets control existing cryptocurrencies, while the activities of the digital Yuan are strictly supervised and controlled by the Chinese government. 

Another difference between a standard cryptocurrency and a digital yuan is anonymity. While existing cryptocurrencies can be anonymous to varying degrees depending on the coin, the Chinese government will monitor the use of the currency moving in its economy. 

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What Are The Benefits of the Digital Yuan for China? 

Financial decisions become more planned

The fact that a state follows the flow of money in its economy and is aware of financial activity contributes to making financial decisions more planned. Accordingly, thanks to the digital Yuan, it will better control personal and corporate mobility in financial terms and better monitor the flow of money in the economy. 

However, cash is the predominant transaction method for payments in China. However, payment systems such as QR codes, coin systems, and mobile payments that have recently emerged and become popular are based on digital money transfers. Digital Yuan will be fully adapted to digital transformation.

Payment firms such as WeChat are pioneers of this digital transformation. On the other hand, the Digital Yuan adapts to this transformation simultaneously and can serve the government's needs to a large extent through the tracking and token system, which is more accessible than cash. 

The unbanked population will participate in the economy

Along with the Digital Yuan, the Chinese government will enable people who do not have access to any bank to join the leading economy. Thus, the independent population of China will be given more say in the leading economy. 

The Chinese currency will have more status in the global economy

Another benefit of the Digital Yuan to the Chinese economy is that it will help position the Renminbi to international reserve status. The Chinese currency, which has the second-largest economy globally, will become comparable to the US dollar in the global economy. 

In other words, the US dollar has an 88.3% stake in the international economic network, while the Chinese currency renminbi only has a 4% share. However, the digitalization of the currency will change international payments and become a preferred method among international traders, and become more popular. 

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