China’s Digital Currency will change online payments

China recently launched the latest round of pilot trials of its new digital currency, with reported plans of a major roll-out by the end of the year and ahead of the Winter Olympics in Beijing in February 2022.

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Officially titled the Digital Currency Electronic Payment (DCEP), the digital RMB (or Renminbi, China’s currency) is, as its name suggests, a digital version of China’s currency.

It can be downloaded and exchanged via an application authorised by the People’s Bank of China (PBOC), China’s central bank.

China is among a small group of countries that have begun pilot trials; others include Sweden, South Korea and Thailand.

Unlike an e-wallet such as Paytm in India, or Alipay or WeChat Pay, which are the two dominant apps in China, the Digital RMB does not involve a third party. For users, the experience may broadly feel the same.

But from a “legal perspective”, the digital currency is “very, very different”. This is legal tender guaranteed by the central bank, not a payment guaranteed by a third-party operator. There is no third-party transaction, and hence, no transaction fee.

Unlike e-wallets, the digital currency does not require Internet connectivity. The payment is made through Near-field Communication (NFC) technology.

Also, unlike non-bank payment platforms that require users to link bank accounts, this can be opened with a personal identification number.