China is well on its way to releasing the world’s first official Central Bank Digital Currency that the country hopes will bolster its performance on the global financial stage. The project has been shrouded in secrecy for the most part, but it is news that the cryptocurrency community has been following closely.

China has adopted a blockchain first approach, leaving the decentralized crypto side of things entirely out of it. But, its blockchain drive has been monumental and heavily pushed by the government. The creation of a digital yuan is now a new step for unleashing the power of the blockchain.

However, the creation of a new digital currency on a state level has a lot of considerations that need to be looked at, as it is pretty much unprecedented. The desire for China to be a blockchain leader might lead to issues with their currency, and perhaps even inflation.

That being said, the consideration that printing digital currency may lead to inflation of some sort in China has been looked at and addressed with a bank representative confirming on the China Central Television that tests are underway.

No adverse effect

Speaking on the China Central Television, the representative said that the new digital currency (also referred to as DC/EP, for “digital currency/electronic payment”) pilot test has been carried out in the cities of Shenzhen, Suzhou, Xiongan new area, Chengdu, and the future site of the winter Olympics.

These tests don’t necessarily mean that there has been public use of the coin yet, as the representative added:

“The current closed test of digital Yuan will not affect the commercial operation of listed institutions, nor will it affect the RMB issuance and circulation system, financial market and social economy outside the test environment.”

To make sure that there is no overselling of the digital version of the currency, the commercial institutions tasked with spreading the coins will have to pay 100 percent reserve to the central bank. This process has been outlined before as the way the coins will disseminate will be by the Central bank sending the coins to other banks or institutions, which will then release them into public circulation.

How it will work

While it will be a purely digital currency, there will be the possibility of using the currency in offline situations as well.

The bank explained:

“In the absence of a network, as long as two mobile phones equipped with a DC / EP digital wallet are touched, the transfer or payment function can be realized.”

It has also been explained that this currency is not tied to any banking system and thus it is also free from the control of the traditional banking system.