Digital Yuan Won’t Trigger Inflation, Bank of China Claims

Chinese State Owned Bank Releases Test App for Digital Yuan

The Bank of China has been fairly quiet about the digital currency evaluations. Making the overall public in China even more curious about what is happening on the market there. In an official announcement, the bank retorted to those queries, describing how this digital Yuan would get the job done.

Digital Yuan inflation
Source: Bloomberg

Assurance Of Now Adverse Results

A Bank of China representative reported that the digital Yuan carried out a pilot test. They referred to it as “digital currency/electronic payment” or DC/EP. Several cities carried out this research: Suzhou, Shenzhen, Xiongan, and Chengdu, as well as in Beijing.

The researcher points out that these present tests don’t imply the DC/EP was publicly available. According to the spokesperson, this closed evaluation of the digital Yuan won’t negatively impact listed institutions’ commercial performance. What’s more, the representative says it would not influence the traditional RMB methods of issuance and flow. The researcher eventually assured that there would be no impact on the social economy or China’s financial market beyond the testing environment.

Acting as a Stablecoin

As a countermeasure against overselling the bank’s digital currency, the bank stated that commercial institutions would first have to cover a 100% reserve to the bank.

Therefore, the item will function as a type of stablecoin, together with the People’s Bank of China first exchanging the digital currencies to different banks and other operating agencies. Then, digital currencies will be available to the public for circulation by the agencies. It is a clean system. It protects against any inflation on account of the electronic Yuan being reverted into the real in a 1:1 ratio.

Concerning technical layouts, the bank has formally finished the upper layer of the plan. The digital currency will shortly adopt a 2-layer structure, in addition to a two-tier delivery system.

Offline Options about the Digital Yuan

The bank gave an intriguing statement concerning connectivity, too. It clarified that if payment works for internet banking and payment systems were to go offline because of a weak signal; DC/EP incorporates double offline technologies to compensate. Therefore, the digital Yuan will be equally as powerful as the paper yuan. The bank said, provided that two cellular phones touched with the DC/EP wallet integrated into both, they could carry out a payment move.

It gets interesting when the Bank of China says the Chinese variant of electronic monies won’t be tied to bank accounts. What’s more, they assert to be exempt from the management of a conventional banking system. We will have to wait and see if that really is accurate and how much of that is actually possible.