China is on the brink of launching its digital yuan for commercial use as the government has already started the pilot run a couple of weeks ago.
During the pilot run of the digital yuan or the DC/EP system, the government employees of 4 major cities were given digital yuan in the form of travel allowance to test how it would fare in the real world.
The pilot program was extended to 8 cities, and there were reports that the government has contacted fast-food giants like McDonald’s and Starbucks to test it as well.
The Chinese government, which begun its research into the digital yuan almost 5 years ago, proved adamant that the digital yuan would be a success.
Li Lihui, the former president of China’s Central Bank, The People’s Bank of China has revealed that he believes digital yuan’s launch can easily replace the current cash system if the digitized yuan meet 4 key conditions.
Lihui’s comments came during a live stream talk on People’s News on May 5th, when he discussed the significance of the much-hyped Central Bank Digital Currency or the digital yuan.
The former central bank president revealed the key reason for the success of the digital Yuan. That being its independent technical architecture, which unlike popular digital payment systems, like Alipay or WeChat, doesn't have to be dependent on any third-party network or bank to confirm transactions.
Lihui went on to reveal that the 4 key conditions that would determine digital yuan’s success over traditional cash payment would be greater efficiency, lower transaction cost, people’s acceptance and enough economic scale with commercial value.
Li Believes There Are Different Forms of Digital Currencies
The former president of the central bank also noted that there are various forms of digital currencies, depending on what type of digital technology they are utilizing.
He categorized these digital currencies in three different forms, namely legal digital currencies (referring to Central Bank Digital Currencies or CBDCs), blockchain-based cryptocurrency, and trusted institution digital currency.
He further explained that decentralized currencies, like Bitcoin, allow for privacy and anonymous transactions. The digital yuan would be quite similar to that, however, the government would put a threshold on the amount of currency that could be sent anonymously by a user.
While the former president likened the digital yuan to Bitcoin in terms of functionality, in terms of underneath technology there is no similarity at all.
While many think digital currency is quite similar to decentralized currencies, the reality is far from it. The digital yuan would work on a hybrid ledger developed by AliPay and would be centralized in nature.
Many have even claimed that the main purpose of creating digital yuan was to control the flow of money in and out of China.