Macroscope | How China’s digital currency push can boost fintech and the yuan’s global presence

There are three main reasons for this. They are way too volatile to be considered a standard of value, they cannot be easily bought or sold, and they cannot be easily used to pay for everyday goods and services.

There is, however, a digital currency that meets these requirements that is starting to gain traction – the digital yuan.

One of the earliest forms of paper currency can be traced back to 11th century China, when the promissory note otherwise known as jiaozi was used for trade in goods until hyperinflation caused its demise decades later. Today, China is the leader again among major economies in its push for a digitised currency.

The People’s Bank of China (PBOC) became the first major central bank in the world to launch its own digital currency in 2020, with trials ranging from payment of public employee wages to electronic cash payments at food and retail outlets. Unlike existing third-party payment functions provided by WeChat and Alipay, which process claims on a bank account much like a debit or credit card, it is the digital form of China’s fiat money and is designed to eventually replace paper money.

PBOC governor Yi Gang said the plan was not to create a new currency, such as bitcoin or Facebook’s Libra project, but to partially digitise China’s existing monetary base, or cash in circulation. Yi has said the new digital currency will not replace other parts of the money supply, such as deposits held in bank accounts or balances held by payment apps such as WeChat and Alipay.