China has officially started rolling out its new digital currency, and it’s got us thinking a lot about cash. More specifically, is a cashless society the new reality?
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China might be the first country to abandon physical money in favor of digital legal tender.
Part of the reason China has taken the lead creating a state-backed digital currency is because the country initially lacked the credit-card based payment infrastructure of other countries, like the U.S. So, tech companies like Tencent and Alibaba developed apps that let people exchange money digitally with their phones.
The apps have proven extremely successful, with hundreds of millions of Chinese citizens using them regularly. So successful in fact that six years ago, China’s central bank saw the upsides of developing its own digital yuan. As of April 2020, the program is being taken for a test run in four Chinese cities. The details on how the currency actually works aren’t very well known, but a few things are clear. The digital yuan is tied to the value of the normal, physical yuan.
Since it’s state backed, that means the government is liable for it and it should be stable, compared to cryptocurrencies like Bitcoin, where the value can swing wildly. And because it’s backed by the state, that means it’ll be more widely accepted.
But how will the digital yuan work, what are the pros and cons, how is it different from cryptocurrency, and what does this mean for the rest of the cash-using world? Find out more in this Elements.
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‘An absolute necessity:’ Why this expert says China desperately needs a digital currency
"It’s the first time we’re going to have money that we program to do things automatically; that has functionality."
China Plans to Test Digital Yuan on Food Delivery Giant’s Platforms
"A virtual yuan could bolster the government’s grip over the world’s No. 2 economy and its giant financial services industry, and some observers think it could someday shift the global balance of a U.S.-dollar-centric global currency system."
What to expect in a cash-free future
"For the first time since paper money was invented some 1,000 years ago, a future where cash is no longer kind seems possible."
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