China's digital currency may be world's first: newspaper

China may issue the world's first central bank digital currency (CBDC), China Daily reported Wednesday.

The to-be-unveiled currency could be put into electronic wallets to support direct and peer-to-peer transactions. The "wallet" could be an app on a smartphone, but the final design has not yet been settled, the newspaper reported, citing Mu Changchun, deputy director of the central bank's payments department.

The headquarters and head office of the People's Bank of China (PBOC), China's central bank, in Beijing, China, November 25, 2018. [File Photo: IC]

The CBDC, a new form of money issued digitally by the central bank and serves as legal tender, is backed by the reserves of valuable assets that commercial institutions deposit in the central bank.

A "closed-loop testing" has already started, simulating certain payment scenarios and involving some commercial and non-government institutions, said an official from the People's Bank of China, who declined to be named.

At the initial stage, the CBDC is for domestic use only. In the future, it is designed to adopt the same exchange rate as physical money, but the cross-border transaction mechanism will be much more complicated, which requires policy coordination with other countries, the official told the newspaper.

"If China successfully issued the world's first CBDC, it will promote other countries to accelerate relevant studies and join the competition of creating CBDC," said Huang Yiping, director of the Institute of Digital Finance at Peking University.

The CBDC could be seen as residents' deposits in the central bank's account, said Peng Wensheng, global chief economist with Everbright Securities.

As PBOC officials reiterated, the CBDC will replace bank notes and coins, or the cash in circulation (M0), and it is designed for retail payments at the early stage.