Back in 11th Century Sichuan, China created the Jiaozi – a promissory note, considered by numismatists as the first ever paper currency in the world.
And now, China has created the first ever Central Bank Digital Currency (CBDC), known as the Digital Yuan. A CBDC uses an electronic record and digital token to represent a virtual form of the nation’s digital currency, opening the nation up to a few advantages such as instant transfers and better records of monetary transactions.
Not to be confused with cryptocurrencies, the Digital Yuan will be centralized under and regulated by China’s monetary authority, just as paper currency is. It is therefore just a digital national currency and not an unregulated cryptocurrency.
While the CBDC is not yet rolled out nationwide, e-commerce giant JD.com has started paying some employees with it and the People’s Bank of China (PBOC) has carried out a number of trials in major cities with it. More than 100,000 people have downloaded the government’s mobile app.
A brief timeline of the roll-out of the Digital Yuan and it’s determiners is as follows-
September 2nd, 1945 – With the end of the Second World War, the US Dollar became the reserve currency of the world. All exchanges, transactions and investments took place with the USD as common grounds for comparison globally. Central banks around the world, as a result, mainly kept their reserves in US dollars.
This put the US in an advantageous position, giving them global dominance and allowing them to put economic sanctions against Iran and North Korea for their nuclear programs and pressure Swiss banks to abandon their banking secrecy, and apply sanctions against more than 250 Chinese nationals that the US accused of genocide or threatening the freedom of Hong Kong. From China’s point of view, the USD as the world’s reserve currency is not good for their sovereignty and power.
2004 – Alibaba and Jack Ma launch Alipay, a mobile wallet app for online transactions.
2009 – Bitcoin is invented. While most nations downplayed the potential of Bitcoin, China paid attention to it. China has a massive cryptocurrency user-base, creating many cryptocurrencies such as Litecoin and Binance Coin. According to Cambridge University’s Bitcoin mining map, China’s miners accounted for 69.3% of the total Bitcoin hashrate.
2013 – Alipay takes over PayPal as the largest mobile payment platform. Wechat launches it’s own mobile wallet Wechat Pay as well.
2014 – China’s top central banker Zhou Xiaochuan noting the effect of Bitcoin launches a study to look at the potential of a Chinese digital currency.
2019 – Facebook announces the launch of it’s own cryptocurrency Libra, that would be available to it’s 2 billion users at the time and allow transactions over the platform. This idea didn’t sit well with US regulators, who put their efforts on stopping Facebook’s power grab, while China accelerated theirs.
2020 – China becomes the leader in mobile payment adoption, Alipay taking up 54% of the market share and Wechat taking up 39%. The government’s grasp on the financial system came under attack from both cryptocurrencies and national tech giants at the same time. In April of the same year, trials for the digital Yuan launched. Instead of replicating the effects of Alipay and Wechat pay and moving paper money electronically, China turned the actual money itself into computer code.
And this brings us to today. The Central Bank has stated that China’s digital Yuan will coexist with the two major mobile payment platforms, although this CBDC does have a few advantages over them. The digital Yuan will be convertible and can be withdrawn from any state bank, and there are no transaction fees for the merchants. They also plan on rolling out an offline transaction feature in the future, allowing one to pay with Digital Yuan while not connected to the internet. It also benefits the government greatly by giving them detailed information on every single transaction completed with the Digital Yuan.