China starts testing digital currency as Facebook's Libra faces setback
Facebook scaled back ambitions for its own digital currency, but China is moving ahead with a digital yuan app
Trial programs for China’s sovereign digital currency began last week as Libra, a cryptocurrency backed by Facebook, scaled back its ambitions to become a global currency.
The first look at the planned digital currency emerged on Wednesday when a screen shot of a test version developed by the Agricultural Bank of China was leaked.
The following day the National Business Daily reported that the Xiangcheng district of Suzhou was expected to put the currency to use in May by paying half the travel subsidies given to public sector workers in digital form.
The 21st Century Business Herald also reported that one unnamed state bank, which is testing the official digital currency, has allowed some of its Communist Party members to pay their membership fees.
The Digital Currency Research Institute of the People’s Bank of China, the agency that is in charge of digital currency development and testing, confirmed that it is conducting trial programs via China’s state-owned banks.
It said pilot schemes for the digital currency would be held in four cities – Shenzhen, Suzhou, Xiongan and Chengdu. It also said 2022 Winter Olympic venues could also be used to test the currency.
But it added that these test versions and applications were not final and “it doesn’t mean that China’s sovereign digital currency is officially launched.”
For now, the tests and trials will be conducted in “closed environments” and will not have any impact on related institutions.
China has not announced an official timetable for launching the digital yuan but last week’s reports have fanned speculation that its launch could be imminent.
The share prices of companies with business relating to digital currency surged last week in Shanghai and Shenzhen.
According to a research note by Citic Securities, China is expected to officially make the sovereign digital currency available to the public later this year.
The brokerage house added that the total size of China’s digital currency could reach 1 trillion yuan (US$140 billion) over the coming years, equivalent to digitalizing about one eighth of China’s cash. In comparison, the total market capitalization of cryptocurrencies, including bitcoin, is about US$200 billion.
Facebook’s Libra project was once touted as a new currency for the internet era but these hopes have faded in the face of strong scrutiny from regulators.
Last week, the Libra group decided that the future currency will be a digital unit tied to an existing currency such as the US dollar or the euro, instead of a brand new token based upon a basket of currencies.