(Kitco News) The Chinese government has been testing out its new government-backed digital currency as a pilot program, and it’s been getting a lot of buzz.
The new e-RMB represents a digital yuan that is backed by the government and is stored in a digital wallet instead of a bank account.
The program had a limited rollout in April with a slow introduction in several cities across China — Shenzhen, Suzhou, Chengdu, and Xiong’an, according to local media. The China Daily reported that some government employees and public servants received part of their May’s salaries in the digital currency form. Others reportedly got the digital currency via transport subsidies.
There is also talk of testing it on a wider scale during the Beijing Winter Olympics in 2022.
However, this limited rollout does not translate to an official launch of the digital yuan, People’s Bank of China governor Yi Gang said last week. “There’s no timetable for an official launch”, Yi told China Finance.
The government’s digital currency will be competing with other digital coins already being used in China, including Alibaba Group Holding’s Alipay and Tencent Holding’s WeChat.
One of the reasons for this new digital currency push could be a chance for the government to oversee the mobile app purchases, which account for about 16% of China’s GDP, Bloomberg reported.
Chinese government also does not want monopolization of digital currencies by tech giants. Last year, People’s Bank of China Governor Yi Gang said: “Those big tech companies bring to us a lot of challenges and financial risks … You see: In this game, winners take all, so monopolies are a challenge.”
China’s search into creating its own digital currency began back in 2014 and could potentially pose a challenge to the U.S. dollar, according to an article in May’s issue of Foreign Affairs written by Aditi Kumar and Eric Rosenbach of the Harvard Kennedy School.
“The advent of digital currencies will degrade the efficacy of U.S. sanctions, limiting the country’s options to respond to national security threats from Iran, North Korea, Russia, and others. It will also hamper the ability of U.S. authorities to track illicit financial flows. And China, meanwhile, will use the combination of its digital yuan and strong electronic-payment platforms (such as Alipay and WeChat) to expand its influence and reinforce its capacity for economic coercion in Africa, the Middle East, and Southeast Asia,” Kumar and Rosenbach wrote.
It is still unclear when China would proceed with a national rollout and what rules would guide the new digital currency.