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China has rolled out a pilot version of an app that allows users to store and pay with digital yuan, also known as e-CNY, as reported by the South China Morning Post. And no, the digital yuan isn’t a cryptocurrency — it was developed by the People’s Bank of China (PBOC) to replace banknotes and coins; thus, it isn’t a decentralized form of payment, nor will it operate on the blockchain.
Although it might sound like we already pay with digital cash when we use a credit card or an online payment service like PayPal and Apple Pay, the digital yuan isn’t anything like that. e-CNY is essentially physical cash converted into a digital form, and it’s been in the works since 2014. According to CNBC, distribution of the digital currency will take place using a two-tier system that transfers e-CNY from the PBOC to commercial banks. Banks will then distribute the currency directly to consumers.
Since the e-CNY isn’t a decentralized currency like bitcoin and other cryptocurrencies, it doesn’t promise the same kind of privacy. The Deutsche Bank says it will have “controlled anonymity,” meaning users can choose to conceal their identities from counterparties, but it will still let the authorities monitor transactions for illegal activities like money laundering.
Digital payment apps like WeChat and AliPay already have a strong foothold in China, with around nine in 10 Chinese people saying they used either app within the past year. It might seem unlikely for the Chinese to want to switch over to the digital yuan, but China has been working hard to promote it. Within the past two years, cities throughout China have even been holding lotteries, distributing a total of 10 million digital yuan (worth about $1.47 million USD at the time) to people in Shenzen in October 2020, 20 million digital yuan (or ~$3 million USD) in Suzhou in December 2020, and 40.2 million digital yuan (or ~$6.2 million) in Chengdu in February 2020.
Last September, Bloomberg covered a trade fair in Beijing, where attendees were shown how to sign up for an account, as well as the many ways to use the digital currency — this includes wearables that users can tap against scanners to pay with e-CNY. As noted in the report, users can fill up their AliPay account with the currency, which suggests both forms of payment might have more of a symbiotic relationship rather than a competitive one.
Bloomberg even describes how some banks at the event demonstrated how foreigners could sign up for an e-CNY account using their passport and phone number, as well as convert foreign currency to e-CNY. As we get closer to the 2022 Beijing Winter Olympics, this may be a way for China to leverage the currency as a way for visitors to easily make payments.
The new e-CNY app is available on both China’s Android and Apple app stores, but only people in 10 specific cities, including Beijing, Shenzen, Chengdu, and Shanghai, can use it. And as pointed out by CNBC, the app will be available to use during the upcoming Olympics.