The People’s Bank of China is poised to become the first major central bank to issue a digital version of its currency, the yuan, seeking to keep up with -- and control of -- a rapidly digitizing economy. PBoC’s official website, the word “Bitcoin” is not mentioned even once, although China is one of the top players in the crypto industry. The principles and technologies on the basis of which it is planned to create a state digital currency are also not explained. Unlike cryptocurrencies such as Bitcoin, though, dealing in the digital yuan won’t have any presumption of total anonymity, and its value will be as stable as the physical yuan.

The What…

The People’s Bank of China (PBoC) has spoken about its commitment towards creating a digital version of the yuan.

According to the People’s Bank of China’s (PBoC) deputy director Mu Changchun, head of the institution’s digital currency research institute, it will provide no scope for speculating on its value and it will not have the backing of a basket of currencies.

Mu recently said that China’s new national digital currency would operate on a two-tier system, with the PBoC on top, and commercial banks allowed on the second tier of the centralized system.

Mu made it clear that China is not launching a war on cash by introducing its own digital currency. Rather, Beijing intends for the new currency to complement the paper yuan.

The How…

In 2013 China invoked a prohibition of financial institutions from handling bitcoin transactions.

In 2014 China creates a special group for cryptocurrency research.

In 2015 China begins active studying of cryptocurrency-related regulatory experience from other countries.

In 2016 China first official announcement that it will create a national cryptocurrency.

In 2017 China creates a research institute setup to further facilitate the development of its national cryptocurrency. They also ban local cryptocurrency exchanges.

In 2019 PBoC moves forward with the creation of its national cryptocurrency on the heels of Libra, currency wars, trading disagreements with U.S. sanctions.

In 2020 - March The Bank of China was alleged to have completed the development of the currency’s basic functions and to have already moved on to drafting laws for its implementation. Screenshots of a purported pilot version of a wallet app for China’s forthcoming digital yuan are circulating on social media. According to Ling Zhang, the app is available for download in four cities selected for the initial trial — Shenzhen, Chengdu, Suzhou and Xiongan. She highlights the inclusion of Xiongan, a new metropolis located on the outskirts of Beijing, which has been the site of a so-dubbed “smart city brain project.” The Xiongan New Area will have enhanced intelligent infrastructure that spans satellite information services, sensor recognition, a 5G network, super-computing and big data facilities. The city has already attracted the country's tech giants Tencent, Alibaba, JD.com and Baidu, with President Xi Jinping visiting on more than one occasion. PBoC digital currency is likely to be tested in these four regions that these locations were likely chosen because they are considered “tier 1 or 2” cities and “are home to tech talent,” especially Shenzhen, deemed the Silicon Valley of China.

BIS Bulletins are written by staff members of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.

In 2020 - April China appears to have been accelerating the development of the digital yuan, according to the BIS Bulletin (shown above) notwithstanding the COVID-19 crisis. China is reportedly working with private industry…