• Own digital currency on trial
• e-CNY should also simplify cross-border payment transactions
China is cracking down on Bitcoin
The Chinese government has been fighting the cryptocurrency market for years – although virtual currencies flourished in China when Bitcoin was introduced in 2008. However, the unregulated transactions were a thorn in the side of the People’s Republic’s leadership from the start, which is why the use of digital currencies to purchase real goods and services were banned as early as 2009. Chinese financial companies were then banned from doing bitcoin business in 2013, before implementing a ban in 2017 against crypto exchanges that exchange cybercoins for fiat currencies. Then, just last year, the People’s Bank of China declared all cryptocurrency-related transactions illegal.
Test phase of the central bank’s digital currency
Official reasons for Beijing’s anti-crypto policy have always been protecting consumers from fraudulent systems, preventing money laundering, and environmental concerns regarding the energy-intensive mining process that takes place with, for example, Bitcoin. However, it should not be ignored that the Chinese central bank is working on its own central bank currency: e-CNY. The digital currency, officially known as “Digital Currency Electronic Payment”, is said to be a digital version of the Chinese renminbi yuan. As part of a pilot project that started in 2020, the domestic Bitcoin alternative is already offered in 23 locations across 15 of China’s 31 provinces, according to Chinese news agency Xinhua in July this year. Consumers who participate in the tests usually receive bonus payouts. In addition to retail trade, e-CNY is also used for corporate lending and possibly tax payments. Zou Lan, Director of the Department of monetary policy from the People’s Bank of China, explained that they now want to expand the pilot project further.
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The pilot project is being expanded to four provinces
This now appears to have happened. According to the South China Morning Post (SCMP), e-CNY is now set to arrive in Guangdong, Hebei, Jiangsu and Sichuan provinces, according to Fan Yifei, deputy central bank governor, at a finance meeting. However, the representative did not announce when the time would come, saying that this would happen “at an appropriate time”.
User numbers doubled in a very short time
In addition, Fan not only describes the digital yuan as “an important infrastructure in the digital age”, but also testifies to “steady” growth in consumers, merchants and transactions. Although the deputy governor did not provide any details on the number of users, by the end of 2021, 261 million people were using the service, the newspaper reported. As of October 2021, there were still 140 million users using e-CNY, as Mu Changchun, director general of the central bank’s digital currency institute, revealed to Reuters news agency last year.
International payment transactions aimed at
According to the SCMP, since the beginning of the year, the use of the digital currency outside of China has also been investigated in cooperation with the Hong Kong Monetary Authority. Contact was also made with the currency custodians of Thailand and the United Arab Emirates for appropriate testing. In this way, e-CNY could simplify cross-border payments between China and other countries. The People’s Bank of China has not yet announced when the crypto-yuan will be introduced nationwide.