As Indian Supreme Court recently upheld RBI’s decision to ban cryptocurrencies, reports have now arrived that China has started testing its government-backed digital currency on a pilot basis. The communist country, thereby, became the first major economy to operate a digital currency.
The trials have reportedly begun in the cities of Shenzhen, Suzhou, Chengdu, as well as in the Xiongan New Area, Hebei province and areas that will host some of the events for the 2022 Beijing Winter Olympics. In last month, China Star Market reported that Suzhou municipal government employees would receive 50% of their May transportation subsidies in PBOC digital currency.
The ultimate goal is to replace paper notes and coins in circulation, according to the several reports citing officials of People’s Bank of China (“PBOC“), the country’s central bank. However, in the short term, the central bank’s digital currency will be issued in limited amounts for the public and the circulation will not be influenced or lead to an inflation surge. The PBOC will be the sole issuer of the “digitalized renminbi”.
Mu Changchun, head of the PBOC’s digital currency research institute, in December 2019 said it would be “a digital form of the yuan” and would require no speculation on its value. The technology used by the PBOC allows the digital currency to be exchanged without the internet, just like using physical cash, said Mu. It is understood that the launch was denied due to Covid19 pandemic, however, the authorities have publicly denied the same.
Central Bank Digital Currency – Past History
While China is the first major economy to launch central bank digital currency, it is not the first country to develop central bank digital currency. In 2015, Tunisia became one of the first countries in the world to issue a blockchain-based national currency called eDinar.
Venezuela in 2018 launched its oil-based cryptocurrency – Petro to circumvent US sanctions. Petro, according to Venezuelan government is backed one-for-one by a barrel of oil. Ecuador, which officially banned Bitcoin in 2014, introduced SISTEMA de Dinero Electronico, its digital currency. The Ecuadorian government aimed at saving money on replacing deteriorating physical money, instead of replacing cash altogether. It may be noted the efforts of Ecuador and Venezuela have not received a good reception from the general public. In February 2020, Sweden has announced the launch of a year-long pilot project of its proposed digital currency named e-krona.
In February 2019, Department of Economic Affairs, Ministry of Finance, Government of India has proposed issuance of ‘digital rupee’ by RBI.