The People’s Bank of China (PBOC) is poised to become the first major central bank to issue a digital version of its currency, the yuan, seeking to keep pace with — and control of — a rapidly digitizing economy.
However, unlike cryptocurrencies such as bitcoin, dealing in the digital yuan would not have any presumption of total anonymity, and its value would be as stable as the physical yuan, which would be sticking around, too.
Some questions remain, including the impact on commercial banks and Big Tech companies such as Ant Financial Services Group and Tencent Holdings Ltd that offer payment services.
Behind China’s rush is a desire to manage technological change on its own terms. As one PBOC official put it, currency is not only an economic issue, it is also about sovereignty.
Although not all details are out, new patents registered by the PBOC and official speeches indicate that it could work something like this: Consumers and businesses would download a digital wallet on their mobile phone and load the digital cash from their account at a commercial bank — similar to going to an ATM. They could then use it like cash to make and receive payments with anyone else who also has a digital wallet.
Most transactions in China are already electronic as the country moves increasingly toward a cashless society. Even street food sellers in small towns would rather use a mobile payment app than make actual change.
In the first quarter of this year, payment apps handled 59 trillion yuan (US$8.3 trillion) of transactions in China, up 15 percent from a year earlier, according to research firm Analysys. Ant Financial’s Alipay handled almost half of that, followed by Tencent’s WeChat Pay with one-third.
The PBOC has said that all non-cash transactions — which also includes such things as credit, debit and stored-value cards, bank transfers and checks — totaled 3.8 quadrillion yuan last year.
The trend is hardly unique to China: A central bank survey in Sweden found that only 13 percent of people last year paid for their most-recent purchase in cash, down from 39 percent in 2010.
The PBOC is making this move for important regulatory and political considerations. Having the ability to track money electronically as it changes hands would be useful in combating money laundering and other illegal activities.
The project was started by former PBOC governor Zhou Xiaochuan (周小川), who retired in March last year. He wanted to protect China from having to some day adopt a standard, like bitcoin, designed and controlled by others.
Facebook Inc’s push to introduce its own digital coin, called Libra, in 2020 might be speeding things up, as it could end up strengthening the US dollar’s dominance — and weakening China’s capital controls. As PBOC research bureau head Wang Xin (王信) said in July, release of the Libra could have “economic, financial and even international political consequences.”
The digital yuan would probably not be a “cryptocurrency,” by which we usually mean an offering such as bitcoin that uses decentralized, online ledgers known as blockchain to verify and record transactions.
Bitcoin and others, such as Ethereum, support anonymous transfers without the need for an intermediary — or a central bank — but the wild volatility in their value makes them ill-suited for use as a means of payment.