The People's Bank of China, as what finance experts have predicted recently, has finally completed the design, development and implementation of China's own virtual currency, the digital yuan.
"The digital currency's design and development research have been significantly completed," a PBOC senior official was quoted as saying by Chinese media on Thursday. "The central bank aims to select areas for test roll-out and carry out the process on a steady basis."
Former PBOC Gov. Zhou Xiaochuan said in a speech Tuesday that electronic currencies have two goals: domestic and international retail settlements.
The PBOC is likely to initiate a step-by-step approach in terms of handling international payments to reduce the effect of any problems that may arise with the launch of the new digital money.
Low-key appeal
In comparison with Libra, Facebook's own version of the virtual currency, the digital yuan is unlikely to attract rigid state regulations if limited to the local market.
According to central bank governor Yi Gang's remarks in a media briefing with senior bank officials, the electronic yuan, or digital renminbi, is a legal virtual currency that has the same value as real cash and will replace some notes and coins.
The virtual renminbi is to be distributed via "two-layered system" mediated by the country's local and commercial banks. If the PBOC provided electronic yuan directly to users without passing through commercial banks, financial intermediary entities would weaken and disrupt economy.
The electronic yuan will act in the same capacity as the current money flow to prevent hampering the integrity of China's financial regulations operating through its local banks.
The digital solution
The quesion about which commercial banks will act as client contact points is yet to be known, but China's four largest government-owned banks, including the Industrial and Commercial Bank of China, including Alibaba Group Holding Ltd. and Tencent, are possible choices.
By exchanging money with these commercial banking companies, users get virtual yuan and keep it on their smartphone's digital wallet.
Like mobile payments that have become popular in Japan, users can make payments and remittances while they shop - even if they don't have internet connection.
In 2014, the central bank began researching on virtual currencies. The PBOC has over 70 pending patents and has well-equipped research centers. In this field, the country is a force to be reckoned with in the global banking business.
Concerns about Libra and speculation about currency hegemony are believed to be the reasons why the Chinese central bank decided to make an unexpected move towards cryptocurrency.
