What would happen if central banks started to issue digital currency directly? An idea that China and other countries are currently exploring.
The impetus for more radical change is coming from China, whose central bank has been running an experiment with a form of cash called Central Bank Digital Currency (CBDC), which it envisions as the cash of the future, ultimately eliminating the need for paper money.
In a CBDC world, the digital code for each virtual currency unit will be held in a digital wallet and transferred seamlessly by the wallet-holder to other people’s digital wallets, very much as we see with today’s fintech and Big Tech digital wallets (think Venmo and ApplePay) and the wallets offered by the traditional banks (such as Zelle, a cooperative of six-banks including Chase, Bank of America, and Wells Fargo). In China, these services will be licensed to four state banks and three telecommunications companies, who will act as wallet distributors rather than cash depositories. Users will scan barcodes on their phones to make in-store payments or send money to other mobile wallets. The People’s Bank of China (PBOC) will periodically receive copies of customer transactions, stored on a mixed central and blockchain database.
The Chinese pilot began with the distribution of 100 million digital Yuan through lotteries in nine cities, including Shenzhen, Suzhou, Chengdu, Xiong’an, and the 2022 Winter Olympics Office Area in Beijing. By the end of September 2021, the digital currency pilot had recorded around 500 million transactions with 140 million users. E-Yuan will be fully rolled out during the Winter Olympics in February 2022, and if bilateral agreements with foreign monetary authorities are reached, tourists and business travelers in China will be able to obtain a Chinese e-wallet on their own phones.
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