Several governments have been pursuing their digital currencies in recent years as one of the ways to gain exposure to the increasingly lucrative crypto market. China is among the countries that have successfully achieved that dream, launching its state-sponsored virtual currency, called the digital Yuan (e-CNY). It has become the Chinese government’s first digital currency. While users can purchase digital Yuan with fiat money like Yuan Pay Group.

The People’s Bank of China introduced the digital Yuan to serve as a legal transaction currency. The PBOC is responsible for distributing this digital currency to commercial banks. Then, the banks are responsible for bringing the coins closer to the general public. Besides, consumers can also exchange their fiat currencies for digital Yuan.

How Digital Yuan Works

Knowing how the digital Yuan works is the first step to understanding its purpose in the economy. Digital Yuan is a virtual currency that serves as a legal tender and means of payment. Users can only access coins online via a mobile app like other cryptocurrencies. The Chinese government has already introduced the Yuan app in 23 cities across China, with more than 1.2 billion users.

Although other cryptocurrencies are decentralized, the digital Yuan has a centralized governance structure, with strict controls by the Chinese government. Users must sign up on the app through seven traditional commercial banks and two online banks, all in China. The app is now integrated into multiple online payment platforms, allowing users to pay for goods and services with digital Yuan.

The Yuan app is currently only available in Chinese app stores. It is for catering to commonplace, small retail purchases, and payments. Users can only access digital Yuan via selected Chinese banks. The People’s Bank of China allows only Chinese citizens to buy digital Yuan.

Like other virtual currencies, digital Yuan users also have a digital wallet to track payments and store funds. The wallet called Shuzi Qianbao is accessible through the app. However, users can create multiple wallets and set controls on the app, including daily spending limits. Besides, the wallet also allows its users to connect different bank cards.

Digital Yuan’s centralized structure makes it extremely difficult for non-Chinese users to access some functions on the yuan app since it requires one to provide a Chinese identity card. The lowest level wallet is available for signing up without a Chinese ID, but users are limited to spending limits of RMB 500 daily and RMB 50,000 annually only.

The People’s Bank of China currently allows only seven commercial and two online banks to provide digital Yuan, wallets, and exchange services. The banks include ICBC, Agricultural Bank of China, China Construction Bank, Bank of Communications, Postal Savings Bank of China, China Merchants Bank, WeBank (WeChat Pay), and MyBank (Alipay). All digital Yuan payments must go through those banks’ third-party apps.

The Roles of Digital Yuan

The Chinese government introduced the digital Yuan for two primary goals. The first and immediate goal of the digital Yuan is to reshape China’s current payment system by reducing the bureaucracies in the traditional financial systems. Digital Yuan will provide an alternative cash-like payment method accessible to all, more secure, and low-cost. The second goal is to deliver a competitive digital currency to rival other virtual coins and stablecoins and maintain RMB’s dominance in the financial ecosystem.

Digital Yuan is an innovative means of payment for goods and services. However, its accessibility and usage are currently limited to Chinese banks, payment providers, and stores.