China is testing its state digital currency in practice

China in crypto fever

Beijing is planning its own state digital currency.

(Photo: AP)

Beijing China has been testing its planned state digital currency since this week. The Chinese Central Bank’s digital currency research institute confirmed corresponding media reports from the weekend, according to the state-run Xinhua news agency. Accordingly, pilot tests have started in the four Chinese cities of Shenzhen, Suzhou, Xiong’an and Chengdu.

Screenshots of apps circulating in Chinese social media are intended to bring the necessary software for the digital currency to the end devices of citizens. According to the report, the central bank’s research institute emphasized that the digital yuan, also known abroad as “e-yuan”, has not yet been officially issued.

Therefore, the ongoing closed test beyond the testing environment will not affect the business of listed companies, nor the issuance and circulation of the state currency yuan, the financial market or the social economy.

China has been racing with other governments and private corporations for some time to be the first to develop its own digital currency. Work started in the People’s Republic several years ago, and efforts have increased in the past two years, according to the Chinese Central Bank.

Countries such as Canada, Uruguay and Sweden are also working on government digital currencies. Chinese aspirations also picked up steam after US internet company Facebook announced in 2019 that it was working on its own digital currency called Libra.

Less cash, more surveillance

According to earlier statements, China initially wants to reduce the cash in circulation with its own digital currency. The classic means of payment can be easily counterfeited and used for money laundering and terrorist financing, it said. In fact, counterfeit money has long been a major problem in China.

Today you are more of an exotic, if you still pay with cash in the People’s Republic. The largest banknote available is 100 yuan – the equivalent of around 13 euros.

For years, the popularity of digital means of payment such as the Alipay apps from the domestic Internet company Alibaba or WeChat from the rival Tencent has been growing.

A district official in the southeastern city of Suzhou near Shanghai will test-pay officials in part of their mobility grants in the new digital currency as of next month, the Wall Street Journal reports, citing a Chinese official. For this purpose, the officials should install an appropriate app on their smartphone.

Critics fear that the Chinese government can use its digital currency to monitor citizens’ private activities even more. China is already monitoring the movements of its residents, for example, through a tight network of surveillance cameras. According to media reports, unlike the forefather of crypto coins, Bitcoin, the currency should be used to exactly understand financial transactions.

It is still unclear how the digital currency will be structured technically. In a speech, the head of the central bank’s research institute, Mu Changchun, said that the virtual coin should be based on a two-tier system. Apparently the central bank is not supposed to issue the currency directly. Rather, it should be brought to the people by the commercial banks.

More: Criticism of the Libra restart is growing: Facebook is making a new attempt for its cryptocurrency.

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