Central Bank of China Says Digital Yuan Will not Spur Inflation

China’s central bank, the People’s Bank of China (PBoC), has officially confirmed several digital yuan test reports. PBoC said tests would begin soon in the country’s capital, Beijing. PBoC also insisted that the deployment of the digital yuan will not cause inflation.

20 April, 2020 | AtoZ Markets – The Bank of China’s secret tests on digital currency aroused great curiosity among Chinese citizens. Recently, the bank responded by giving an official explanation of the digital yuan project and how it works. Central Bank of China claims that digital yuan will not cause inflation.

PBoC Officially Confirms Digital Yuan Testing Reports 

The central bank confirmed the four sites tested and went further by declaring that “the site of the next Olympic Winter Games” – presumably the National Bird’s Nest stadium. Beijing and the capital’s Yanqing District – will also see digital yuan testing in the coming weeks.

However, the researcher pointed out that these current tests do not imply that the digital yuan has been officially released for public use. The representative added:

“The current closed test of the digital yuan will not affect the commercial operation of listed institutions. It also includes the RMB issuance and circulation system, the financial market and the social economy outside the test environment.”

The central bank added that to avoid “over-selling” and any resulting inflation, participating institutions will have to provide 100% of the reserve funds to PBoC. In other words, at the time of issue, PBoC will first exchange digital currency with banks or other operating agencies. These organizations will then put digital currency into circulation.

However, the UDN media said it could also include Zhangjiakou, in Hebei Province. It will host some of the biggest showpiece events of the games. The Chinese government hopes its digital currency will be operational in time for the international flagship event, which will begin in February 2022.

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Technical Design and Main Features

The bank completed the upper design layer. The digital currency adopted a two-layer architecture and a two PBoC level distribution system. The PBoC also confirmed that individuals and traders would be able to do wallet-to-wallet transactions using the digital token without the need for central banking. Moreover, the token would be usable in “offline” scenarios. The bank explained: 

“In the absence of a network, as long as two mobile phones equipped with a digital DC/EP wallet are affected, the payment function can be performed”.

According to the bank, the Chinese version of digital currency does not link to any bank account. They further claim that it is free from any control over the traditional banking system.

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