China is taking real steps to launch its national digital currency, “digital yuan”, with plans for use at the Winter Olympic Games 2022 in Beijing. The news comes as China is sloping up pilots for the computerized yuan.
Digital Yuan Tests
Last week, China announced that it will pilot digital yuan in four regions, including some cities that will host the Winter Olympics.
Sun Guofeng, Head of the Monetary Policy Department of the People’s Bank of China (PBOC), said they conducted internal tests on digital yuan in Shenzhen, Suzhou, Xiongan, and Chengdu.
Currently, the PBOC limited the digital yuan (officially the Digital Currency Electronic Process or DCEO) test to small-scale retail payments. These tests are in progress in Shenzhen, Chengdu, and Hebei Province. However, rumors earlier this month suggested that the DCEO was spreading to large volumes of transactions.
“The monetary policy requires greater certainty,” Guofeng said. Therefore, China has not adopted zero or negative interest rates and other non-traditional policies such as quantitative easing. That means the PBOC does not need to deal with the complications associated with exiting such measures.
China is still testing the environment before launching its digital currency. If the test went successful, the coins will be issued in 2021. But if not, more tests will be organised.
Legal and Security Aspects
PBOC’s statements asserted that only digital yuan is being tested for small transactions by using phone numbers. To raise the security limit, more documents such as personal photo or ID proof will be required.
The DCEO acts as a legal tender, and customers can convert it into notes at a 1:1 ratio upon request.