In a move that is no surprise to industry experts, China has begun testing its own digital currency for interbank transfers. Recent speeches by national bank insiders along with some publications have indicated the direction the Chinese would like to take.

Presently, it seems that the goal would be to provide a second digital currency that would function alongside the yuan. While the technology is likely still a distant potential, the government has begun running tests with the cryptocurrency and even testing its functionality with national banks.

Benefits

The government would likely reap almost immediate benefits.

First, in a country with so many people and little infrastructure, a digital currency would make funds available in areas without conventional banks.

Second, a digital fiat currency would provide the government with more hands-on traceability of digital transactions which are already a massive industry in China (note the recent potential acceptance of Bitcoin by Alibaba).

Finally, such a currency would provide reduced costs and increased transactions which would spur economic growth.

While cryptocurrencies have traditionally spurned fiat currencies, a Chinese hybrid currency would open a new world of currency choices for the government, its citizens and businesses as well.