Interest in China’s digital yuan project could in part be driven by the surging price of bitcoin, China’s central bank said Thursday, even as the cryptocurrency is effectively banned in the world’s second-largest economy.
China’s digital yuan is an example of a central bank digital currency (CBDC) which aims to replace some of the cash in circulation.
The the People’s Bank of China (PBOC) sees it as a way to advance cashless payments. It is effectively a digital version of fiat currency. The central bank has been working on a digital currency since 2014.
Speaking to reporters, Wang Xin, PBOC research bureau director, said market interest in the digital yuan is “very strong and everyone is paying close attention.”
“On one hand, this is related to more and more central banks in the world participating in the development of domestic digital currencies,” Wang said, according to a CNBC translation of his Mandarin comments.
A number of central banks around the world — including Japan, the U.K., Sweden and Switzerland — are exploring issuing their own digital currencies. China is arguably the furthest ahead.
“On the other hand, this (interest) may also be related to the large increase in the price of bitcoin,” Wang said.
The price of bitcoin has repeatedly hit record highs in the past few months. This year alone, it has more than doubled.
But China’s digital yuan is not like bitcoin.
The latter is a so-called decentralized cryptocurrency, which means it has no central authority — such as a central bank — to control it. Bitcoin also works on a technology called blockchain and it’s unclear at this point what the digital yuan will be based on.
Chinese authorities have cracked down on bitcoin over the past few years.
In 2017, Beijing banned so-called initial coin offerings, a way to issue new digital tokens and raise money. The government has also cracked down on businesses involved in cryptocurrency operations, such as exchanges.
Last month, China’s Inner Mongolia region banned new cryptocurrency mining projects in a push to clean up its energy consumption.
More digital yuan pilots ahead
So far, the PBOC has not given a timeline for the nationwide rollout of the digital yuan. But it has carried out a number of real-world pilot projects in cities around China.
These often take the form of lotteries where people in those cities can apply to get a slice of a pool of digital yuan and then spend it at participating retailers.
Over the Chinese Lunar New Year in February, authorities handed out about $1.5 million in Beijing. Other major cities including Shenzhen and Chengdu have had their own trials.
Wang said the pilots and are “increasing, and also expanding in scope.” He hinted at more trials to come.
“Next, we will push ahead with digital RMB pilots, and accumulate more experience,” he said.
