Bank Of China Says Digital Yuan Will Not Cause Inflation

The Bank of China’s secretive digital currency tests have led to tremendous curiosity among Chinese citizens. Recently, the bank responded with an official explanation of the proposed digital Yuan and how it would work. 

A bank representative confirmed on the China Central Television on April 19 that the new digital currency (also referred to as DC/EP, for “digital currency/electronic payment”) pilot test has been carried out in the cities of Shenzhen, Suzhou, Xiongan new area, Chengdu, and the future site of the winter Olympics. 

However the researcher stressed that these current tests do not imply that the digital Yuan has been officially issued for public use. The representative added: 

“The current closed test of digital Yuan will not affect the commercial operation of listed institutions, nor will it affect the RMB issuance and circulation system, financial market and social economy outside the test environment.”

In order to ensure that the central bank's digital currency is not oversold, commercial institutions will pay a 100% reserve to the central bank, says the institution. In other words, at the time of issuance, the People's Bank of China will first exchange the digital currency to banks or other operating agencies. These agencies will then release the digital currency into public circulation.

Technical design and main characteristics 

The bank has completed the top layer of design, with the digital currency adopting a two-layer architecture and two-tier delivery system.

If the payment functions of online banking and payment platforms were to go down due to poor network signals, DC/EP’s dual offline technology will ensure that the digital Yuan will work as effectively as the paper Yuan. The bank explained: 

“In the absence of a network, as long as two mobile phones equipped with a DC / EP digital wallet are touched, the transfer or payment function can be realized.”

According to the bank, The Chinese version of digital currency is not tied to any bank account. They further claim that it is free from the control of the traditional banking system. 

Unlike other cryptocurrencies, the digital Yuan is launched by China's central bank and is therefore backed by the country's credit. This is similar to an electronic version of the renminbi. The bank says that, compared with Bitcoin, this new digital currency will have greater inherent stability.

As Cointelegraph reported earlier, the Chinese central bank’s digital currency was tested as part of a transport subsidies scheme for local government and enterprise workers.