Also known as the digital renminbi, the digital yuan is a CBDC (central bank digital currency) developed and issued by the Chinese central bank. It is the electronic version of China’s currency, the yuan, and is intended to promote financial inclusion, enhance retail payment systems, and boost economic growth.
Keep reading this article to learn more about China’s digital yuan.
Exploring Digital Yuan
The Chinese government recognizes the digital yuan as a legal tender. As mentioned, it seeks to facilitate easier accessibility to financial services across China. The CBDC has witnessed massive adoption since 2023, as evidenced by the large transaction volumes.
In 2023, the digital yuan facilitated $250 billion worth of transactions. According to the Chinese central bank, over 124 million wallets hold the digital yuan as of August 2024. These wallets have made more than 1 billion transactions since 2023.
Development Timeline of China’s Digital Yuan
Here are the stages involved in developing the digital yuan.
2014 – 2016: Initial Concept and Research
In 2014, the Chinese central bank saw it necessary to digitize the yuan in an effort to promote financial inclusion and streamline the country’s payment system. That year, research on CBDCs began, and in 2016, the central bank formed a special team tasked with establishing a solid foundation for an effective and secure digital payment system powered by an electronic yuan.
2017 – 2019: Pilot Programs and Development
The Chinese central bank intensified its research on CBDCs between 2017 and 2018, with the focus being on the technical aspects, legal aspects, and the possible impact on monetary policy and financial stability.
By 2019, China had developed its CBDC and started a pilot program in various cities. The program intended to gauge how well the digital yuan would work in real-life scenarios such as interbank settlements and retail payments.
2020 – 2021: Expansion of the Pilot Tests
In 2020, the Chinese government extended the pilot program for its CBDC to more cities, including Chengdu, Shenzhen, Xiongan, Suzhou, and New Area. At that time, the digital yuan only had one use case: paying for shopping at retail shops. In 2021, China expanded its CBDC’s use cases, which included payments on e-commerce websites and cross-border payments.
2022 to Date: Ongoing Developments
After successful pilot tests, China’s central bank has concentrated on improving the digital yuan ecosystem in the past three years. The financial institution says its priority is to ensure seamless interoperability with established platforms while promoting the use of CBDCs across international borders.
To expand the use cases of its CBDC, China has launched a smart contract functionality that enables the digital yuan to be integrated into various sectors like finance, retail, and services.
How the Digital Yuan Works
The Chinese central bank issues the digital yuan with the help of payment service providers. These providers are expected to allow Chinese citizens to transact privately while maintaining effective tracking capabilities to curb illegal activities like money laundering and tax evasion.
It is worth mentioning that digital wallets holding the digital yuan are not bank accounts. Therefore, if you want to cash out your digital yuan, you must open a bank account with a financial institution that supports the CBDC.
As of August 2024, banks that provide support for the digital yuan include the Bank of China, the Agricultural Bank of China, the Postal Savings Bank of China, the Bank of Communications, the Industrial and Commerical Bank of China, and the Postal Savings Bank of China.
How Do You Access the Digital Yuan?
You can access the digital yuan via an e-CNY app offered by payment service providers. Once you download the app, set up your digital wallet using your phone number and deposit funds from your bank account. The deposited money is automatically converted to the digital yuan when it reaches the digital wallet. From there, you can start making transactions, such as paying for shopping on the Alibaba platform.
