BEIJING—China’s central bank has introduced a homegrown digital currency across four cities as part of a pilot program, marking a milestone on the path toward the first electronic payment system by a major central bank.

Internal tests of the digital currency are being conducted in four large cities around China—Shenzhen, Suzhou, Chengdu and Xiong’an, a satellite city of Beijing—to improve the currency’s functionality, the digital currency research institute under the People’s Bank of China confirmed Monday, in response to...