The Beijing authorities will launch an experiment in which citizens will be paid to switch to the digital yuan, CNBC reports. About 50,000 people will take part in a large-scale experiment, they will be allocated 200 yuan ($ 31) each. In total, citizens will receive 10 million yuan ($ 1.5 million).
This is the third major test of the digital currency being developed by the People’s Bank of China. In the past few months, similar experiments have been carried out in the cities of Shenzhen and Suzhou.
Unlike bitcoin and other cryptocurrencies, the DCEP is issued and backed by the country’s central bank and is designed as a digital version of the yuan.
A number of other pilot projects for the digital yuan have been held in Xiongan, Chengdu and venues for the 2022 Winter Olympics in Beijing, but the central bank has said there was no official timetable for the launch of the digital yuan.
HOW DIGITAL YUAN WORKS?
From a user perspective, it is rather like China’s existing commercial digital payment methods, like Alipay and We Chat Pay: users download digital wallets in which they can store their funds, and which generate a QR code that can be scanned by payment terminals in shops.
The system is more complicated than that, however. The digital yuan is designed to replace cash in circulation, such as coins and bank notes, not money deposited long-term in bank accounts.
Commercial banks will have a role in distributing the digital currency to users, and to do so they must deposit exactly the same amount of their reserves with the PBOC as the digital yuan they distribute.
Both commercial bank distributors and the central bank will keep databases tracking the flows of digital yuan from user to user, something that they cannot do as effectively with coins or banknotes.
Unlike cryptocurrencies like bitcoin, the digital yuan will not use blockchain, distributed ledger technology which allows transactions to be validated without the need for banks.
WHAT EFFECT WILL IT HAVE?
Widespread use of the digital yuan would give Chinese policy makers greater visibility into how money flows around China’s economy.
This would help them track any illicit flows of funds, such as money laundering or terrorist financing, and it would also allow them to experiment by targeting monetary policy interventions on specific economic classes, regions or other groups.
In extreme economic circumstances, it would also allow them to have negative interest rates for cash.
China has a long-standing aim of internationalising its currency, and in time, the digital yuan may help with this initiative, making it easier to encourage users in other countries to use the yuan.
The People’s Bank of China is one of several global regulators developing their own digital currency. The central banks of Sweden, France and several other countries are doing the same.
Sweden is one of the first countries to consider adopting cryptocurrencies. The central bank has already presented a pilot e-krona project based on a blockchain technology similar to Bitcoin.
e-Krona is traditional money, but in digital form, issued and managed by the country’s central bank. Unlike cryptocurrencies, which are managed by different online communities rather than a centralized authority.
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