Widely-traded virtual currencies, such as bitcoin, operate under a decentralized computer network that allows individual users to stay anonymous and make transactions outside of a central authority.
The pricing of bitcoin-like cryptocurrencies can be volatile, making them attractive subjects for speculations – the act of buying a cryptocurrency token at a specific price to resell it later when its value rises.
China’s digital currency is the opposite of that. It will be managed by China’s central bank under a centralized system and under close supervision by the government. One may think of it as a digital wallet more similar to PayPal than cryptocurrency.
Users are expected to register with their real identities, although the government says the system may support anonymous payments when the amount is small.
Officials have said the currency would not be for speculation. Its exchange rates with other currencies will be the same as the yuan’s, which are under tight control by the government.
China’s central bank says the digital currency could make transactions more secure, convenient and efficient.
Experts say the digital currency is also expected to give the government more oversight over the movement of money within the world’s second-largest economy. The use of digital yuan could be checked in real time, which could help authorities identify money laundering, tax evasions or other related offenses.
The Chinese government says the digital currency will also help those who do not have bank accounts to access financial services. More than 224 million Chinese people, mostly in rural areas, did not have bank accounts by 2017, according to World Bank data.
Wider use of the digital money could cut the costs of making notes and coins. Digital cash could reduce the infection risk during the Covid-19 pandemic, according to policy researchers quoted in government reports.
The state-run digital payment service is also expected to challenge the dominance of Alipay and WeChat Pay, the two mobile payment services that have pushed China closer to becoming a cashless society.
Authorities have said that the central bank should provide similar transaction tools in case services run by private companies are disrupted.
Additional reporting by Karen Yeung.
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