Due to the COVID-19 pandemic, the competition in the digital currency space has increased. This is because of the growing concern among consumers that using coins and cash might worsen the outbreak.
Now, companies and even countries are looking to create new digital currencies to promote cashless and contactless payments.
China’s Digital Yuan Initiative
In an effort to become the first cashless society after lockdown, China recently launched a test program in four cities for its digital yuan currency. The digital currency is only available to customers in Shenzhen, Xiong’an, Chengdu and Suzhou. It is also tested by major companies such as Starbucks and McDonald’s.
According to China, instead of being stored in a bank account, the currency only exists as a code in the consumer’s mobile app. All consumers have to do is download the digital wallet app backed by the Chinese government. Users then have to link their bank account to the app, and deposit money which will be converted into the digital yuan. Using the money, consumers can make retail payments by scanning a barcode. Additionally, it is possible to send money to other users, and request payments. What is interesting, consumers can also make peer-to-peer payments by touching their smartphones together.
Inside the app, users can also manage their funds, link the wallet to other accounts, as well as keep a history of previous transactions.
Now, a former senior official at People’s Bank of China, Wang Zhongmin, recently said that the backend development of the digital currency has been completed. Still, it remains unknown when the digital currency will be launched to the wider public. Some reports, however, are saying that it will be tested on a larger scale during the 2022 Winter Olympics in Beijing.
Recently, a screenshot emerged of an e-wallet showing the digital currency in test mode. The wallet shows a digital cash note on the screen. The menu includes options to “scan to pay,” “send money,” “collect & pay,” and “touch phones.”
China’s Mobile Payments Market Is Booming
Many Chinese consumers have already adopted mobile payments as their primary payment method. The mobile payment market consists of 890 million users in China. Studies have also shown that over 80% of Chinese smartphone users make transactions using their devices. The market is dominated by two players: Tencent Holding’s WeChat and Alibaba Group’s AliPay.
The digital currency will go face-to-face with both of the mobile payment apps. One of the advantages that the digital yuan wallet already has is that it doesn’t need an internet connection to operate. Users of AliPay and WeChat, on the other hand, must be connected to the internet to use the app.
It is currently difficult to say whether the initiative will be successful. It is possible that China would also have to change its legislation to guide the new currency. According to Li Lihui, former president at the Bank of China, for the digital yuan to become a dominant form of currency, it has to have greater efficiency and lower transaction costs than other payment methods. This will improve its chances to gain people’s acceptance on a wider scale.