Digital Yuan Trial on a Large Scale with Local Banks

Yuan Digital has recently been piloted on a large scale with a number of local banks in Shenzhen, China. Participants involved said there were still many limitations compared to Alipay and WeChat Pay services. The Central Bank of China is increasingly agile in testing their digital yuan. After last May 2020, it was recently retried on a large scale. This time involving a number of banks, including ICBC, Bank of China, China Commercial Bank and Agricultural Bank of China.

What is Digital Yuan?

Yuan Digital is the new digital version of the Chinese currency, the yuan / renminbi. Previously said to be made using blockchain technology.

In fact it does not fully use a peer-to-peer blockchain but rather a similar one, namely the relatively more centralized Distributed Ledger Technology (DLT). It allows administrators to exercise tight control over their transactions. In the eyes of the Central Bank of China, digital yuan is referred to as DC / EP aka Digital Currency / Electronic Payment, referring to a new type of electronic payment system for digital eyes.

The system is close to the IMF and World Bank's definition of the CBDC (Central Bank Digital Currency), aka Digital Currency, which is issued and controlled by the Central Bank.

CBDC is actually placed as a substitute for cash (physical / demand deposit) in circulation or money in circulation, also known as "M0". This differs from the digital money by Alipay and WeChat Pay which is called M2 (cash in commercial bank accounts).

M2 is an indicator of the money supply and inflation, and is often a pillar of central bank monetary policy. And so the central bank will be very concerned, if this part of the money supply grows out of sync with the rest. CBDC is also considered more efficient, because it facilitates control of transactions, especially across countries, including creating a more accurate monetary policy. Transfer times and fees can be faster and cheaper than using ordinary banking services, just as the current public blockchain is in the context of USDT stablecoins.