The Digital Yuan: China’s Very Own Cryptocurrency
Ever since the release of the e-CNY app, the digital yuan has been rapidly growing in popularity. Issued and regulated by the government, the digital yuan is the digital version of the currency currently in circulation. Although not legally considered a cryptocurrency, as those are banned, it is essentially the same principle. Now, it's being used to pay taxes in select cities.
The People’s Bank of China (PBOC) released the e-CNY app, the digital wallet used for the digital yuan, on January 4, 2022. In just two weeks, they already reported 261 million users and 87.5 billion yuan ($13.78 billion) worth of transactions has been made using the digital fiat currency. This digital currency is centralized and traceable by the Chinese government, and is now used to pay taxes in certain cities.
Many of us know that China has issued a ban on bitcoin and various other cryptocurrencies and has deemed them illegal as they may be used to launder money. This provides the question, why did they create this? Well the Chinese government has a variety of answers to that question. First of all, they wanted a digitized version of their currency, and what better way to do this than by having the backing of a centralized bank? This allows them to trace transactions and makes them much more secure. Let's say the government wanted to send funds to a small town - e-CNY would be a far better option than its competitors, Alipay and WeChat, as they could trace it in the event anything went wrong. On the topic of competitors, the government wanted to provide some competition to the already existing giants in the digital payment industry. e-CNY is meant to be a substitute to those two.
The e-CNY app is only available in China, and is found on any of the major app stores. From there, the setup is fairly simple. The wallets are not considered bank accounts, and you only need a phone number to set one up. As it is fully backed by the PBOC, it offers more anonymity than other sources and at the same time, more security. The PBOC chose to define e-CNY as cash in circulation, or as M0, in economics terms. This means that e-CNY will be a liability to the PBOC rather than to the commercial banks, making it effectively risk free.
Many industries in China have already picked up e-CNY and have begun using it as an accepted payment option. However, it being used for taxes is something that is completely new. Reports have shown that starting April 26, e-cny is being used for “the online transfer of digital yuan” to pay taxes. This is only happening in pilot cities for now, but these pilot areas are only growing. As unexpected as it was for many of us, it makes sense seeing the amount of resources the government had invested into security for this app. However, according to the Zhejiang Provincial Taxation Bureau, it is just a new payment method that can supplement the existing tax payment channels, rather than replace them. The benefits of using e-CNY include better support for online tax processing, taxpayers being able to independently obtain tax payment information, and initiate tax payment or deduction independently.
What Does This Mean for the Future:
It was already an incredible breakthrough when China was able to successfully develop and launch a fully digital version of their currency. Not only that, but it was backed and regulated by the central government which puts its leagues ahead of its global competitors. Now that people are able to use it to pay taxes, the popularity of it will only skyrocket. Seeing as there are other countries which desperately want to create a digital currency, all the signs point towards a future where all transactions are made digitally.