The only officially recognized virtual currency in China! The digital yuan has a transaction volume of 7.3 trillion, crushing Bitcoin.

The only recognized virtual coin in China is the digital Renminbi (e-CNY), issued by the People's Bank of China, which has the same legal status as banknotes and coins. No unit or individual may refuse to accept it. As of the end of July 2024, the Digital Renminbi APP has accumulated 180 million personal Wallets opened, with the total transaction amount in trial areas reaching 7.3 trillion CNY, and the pilot scope has covered 26 regions in 17 provinces across the country.

The Legal Currency Attributes and Technical Characteristics of Digital Renminbi

The digital renminbi is a digital form of legal currency issued by the People's Bank of China, equivalent to physical renminbi, possessing value characteristics and legal tender status. It adopts a two-tier operation system, in which the central bank issues it to designated operating institutions, which then exchange it with the general public. This two-tier system ensures the central bank's core position while fully utilizing the convenience and efficiency of the existing financial system.

The legal tender attribute of the digital yuan distinguishes it fundamentally from virtual coins like Bitcoin. Legal tender means it is backed by national credit, its value is equivalent to the yuan, and it does not possess speculative properties, making it a stable payment tool. No institution or individual may refuse to accept digital yuan, as this is mandated by law. In contrast, virtual coins like Bitcoin do not have legal tender status, and merchants can choose whether to accept them.

From a technical perspective, the digital yuan is based on blockchain technology, but the central bank retains control over transaction data to ensure financial security and anti-money laundering regulation. This design strikes a balance between decentralization and regulatory needs. The most notable technical feature of the digital yuan is the support for “offline payment” functionality, which allows transactions to be completed via mobile NFC in environments without internet access. This feature is particularly important during natural disasters such as earthquakes and typhoons that disrupt internet connectivity, ensuring the resilience of the payment system.

Four Core Characteristics of Digital Renminbi

Legal Tender Status: Backed by national credit, exchangeable at a 1:1 ratio with CNY, possessing unlimited legal tender.

Dual-layer operating system: The central bank is responsible for issuance and management, while commercial banks and payment institutions are responsible for distribution and circulation.

Offline Payment Function: Supports transactions via NFC in a no-network environment, ensuring payment resilience.

Controllable Anonymity: Achieve “small amount anonymity, large amount traceability”, balancing privacy protection and regulatory needs.

The balance between privacy and regulation is the most exquisite part of the design of the digital renminbi. It achieves “small amount anonymity, large amount traceability,” where small transactions do not require real-name authentication, protecting user privacy; while large transactions require identity verification to prevent illegal activities. This design responds to the public's demand for privacy protection and meets the regulatory authorities' requirements for anti-money laundering and anti-terrorism financing.

The Essential Differences Between Digital Renminbi and Bitcoin

It is important to note that the digital renminbi is fundamentally different from decentralized virtual currencies such as Bitcoin and Ethereum. China explicitly prohibits the use of Bitcoin and other virtual coins as a means of payment, considering it illegal financial activity due to its high price volatility and potential use in money laundering and other illegal activities. This policy stance stems from fundamental considerations of financial stability and monetary sovereignty.

The price volatility of decentralized virtual currencies like Bitcoin is extremely severe. Bitcoin reached a high of $69,000 in 2021, then fell to $15,000 in 2022, with a fluctuation of over 78%. This dramatic volatility makes it unsuitable as a stable means of payment. Imagine if you bought a cup of coffee with Bitcoin today, and tomorrow the price of Bitcoin doubled, you would regret it; if the price halved tomorrow, the merchant would incur losses. This uncertainty makes Bitcoin more like a speculative asset rather than a currency.

The digital renminbi does not have this problem at all. Due to its 1:1 exchange rate with the renminbi, its value is stable; today 1 digital renminbi is still 1 digital renminbi tomorrow. This stability is a prerequisite for becoming an effective payment tool. Additionally, the decentralized nature of Bitcoin makes its transactions difficult to trace, making it easy to be used for illegal activities such as money laundering, terrorist financing, and tax evasion. Chinese regulatory authorities have explicitly prohibited Bitcoin as a means of payment in order to maintain financial security and social stability.

From the perspective of currency sovereignty, allowing decentralized virtual coins to be used as payment tools will weaken the central bank's control over money supply and monetary policy. The digital yuan is a form of digital currency led by the central bank, fully within the regulatory framework, ensuring the state's complete control over the monetary system. This is also the fundamental reason why China vigorously promotes the development of the digital yuan while banning virtual coins such as Bitcoin.

Key Differences Between Digital Renminbi and Alipay

Many people confuse the relationship between the digital renminbi and Alipay. Essentially, the digital renminbi is the legal currency itself, it is “money”; while Alipay is a third-party payment tool, it is a “Wallet”. This distinction is crucial and determines the different positions of the two in the payment ecosystem.

The digital renminbi is issued by the People's Bank of China and has the attributes of legal tender (M0), which cannot be refused by any institution or individual. Alipay, on the other hand, is provided by private enterprises such as Tencent and Alibaba, and merchants can choose whether to accept it. In terms of internet dependency, the digital renminbi supports dual offline payments, allowing transactions to be completed even when neither party has internet access. Alipay, however, must be online to be used.

The differences in transaction fees are also quite evident. Transactions and withdrawals using the digital yuan are completely free, which is an advantage of fiat currency. Although Alipay offers free transfers, withdrawals to a bank card may incur a fee. Regarding account requirements, the digital yuan can be used directly without a bank account, which is particularly friendly for those without a bank account. In contrast, Alipay requires a bank card to be linked for top-ups and withdrawals.

In terms of privacy protection, the digital renminbi achieves controllable anonymity, and small transactions do not require real-name verification. In contrast, Alipay requires real-name authentication, and all transaction records are linked to personal identities. This difference gives the digital renminbi an advantage in protecting user privacy, although this privacy is “controllable” and large transactions still require identity verification.

Currently, the operational institutions of the digital renminbi include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Postal Savings Bank, China Merchants Bank, Industrial Bank, and MyBank (Alipay). It is worth noting that Alipay is also one of the operational institutions of the digital renminbi, which means they are transforming from being purely a third-party payment tool into an issuance channel for the digital renminbi.

7.3 trillion transaction volume behind the wide application scenarios

As of the end of July 2024, the Digital Yuan APP has cumulatively opened 180 million personal wallets, and the total transaction amount in trial areas has reached 7.3 trillion yuan. The pilot scope has covered 26 regions across 17 provinces nationwide. These figures indicate that the Digital Yuan has transitioned from the experimental phase to the large-scale promotion phase.

The daily consumption scenario is the main application area of the digital renminbi. In terms of retail consumption, large supermarkets, chain restaurants, convenience stores, and other offline merchants widely support digital renminbi payments. Online shopping platforms such as JD.com, Tmall, Taobao, Meituan, and Ele.me have also fully integrated. In the public transportation sector, subways, buses, and shared bicycles can all use digital renminbi for payments. This comprehensive coverage ensures the practicality of the digital renminbi.

The government service scenario is another important application direction for the digital CNY. In terms of tax payment, individual income tax, vehicle purchase tax, social security fees, etc., can be paid using digital CNY. Livelihood payments include water bills, electricity bills, gas bills, communication fees, and other public utility fees. Government subsidies such as scholarships, research funding, rural revitalization subsidies, etc., are also distributed through digital CNY, ensuring precise deployment of funds and transparent management.

The public business scenario demonstrates the potential of digital RMB in enterprise-level applications. In supply chain finance, large trade settlements between enterprises can use digital RMB, enabling payment upon settlement and significantly improving capital turnover efficiency. In terms of salary distribution, companies distribute salaries to employees through digital RMB, with zero transaction fees and instant crediting. Financial funds such as government subsidies and special allocations can also be completed through digital RMB, ensuring that funds are used for their intended purposes.

Innovative application scenarios reveal the future potential of the digital renminbi. In terms of cross-border payments, the digital renminbi is conducting cross-border payment pilot programs with regions such as Hong Kong and Singapore, which will promote the internationalization of the renminbi. The smart contract feature supports conditional payments such as prepaid consumption and targeted subsidies; for example, educational grants can only be used for tuition payments and cannot be withdrawn or transferred. In the field of green finance, the digital renminbi can be used for carbon credit exchanges, green travel rewards, etc., ensuring that funds are used for environmentally friendly consumption through smart contracts.

The Internationalization Ambitions and Challenges of Digital Renminbi

In terms of future direction, cross-border payments are the most strategically significant development direction for the digital renminbi. China is establishing a multilateral central bank digital currency bridge to achieve interoperability with the central bank digital currencies of other countries, promoting the internationalization of the renminbi. If this vision is realized, it will significantly enhance the position of the renminbi in international trade and finance, reducing dependence on the dollar-dominated SWIFT system.

In terms of smart contracts, the digital renminbi plans to deepen its application in areas such as government affairs and finance. Through programmable currency, more complex payment logic can be achieved, such as installment payments, conditional payments, and automatic profit sharing. In terms of inclusive finance, the digital renminbi aims to expand service coverage and lower the threshold for financial services. For groups without bank accounts, the digital renminbi provides opportunities to participate in the digital economy without the need for bank intermediaries.

The digital renminbi, as an important component of the national financial infrastructure, is gradually changing people's payment habits and providing important support for the development of the digital economy. With the continuous expansion of application scenarios and ongoing technological innovations, the digital renminbi will play a more significant role in the future, becoming China's only officially recognized virtual coin form.