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What Is Digital Currency? – Definition, Development, And More

Definition Digital Currency

The race for countries to issue digital currency backed by their central banks is picking up speed, and China leads the way.

The Asian giant is testing the new digital currency in various countries to replace banknotes and coins in circulation, equivalent to the country’s central bank.

The pilot tests are carrying out in a closed environment. And are not connected with the current issuance system and circulation of sovereign currencies.

“In the short term, the central bank’s digital currency will not be issued in large quantities to the public, ” said a statement from the central bank, which will be the sole issuer of the digitized yuan.

In the first stage, it will offer digital money to commercial banks and other operators. Then the public will be able to transfer the funds in their bank accounts to the digital version of the yuan and deposit it in electronic wallets.

Zhou Xuedong, a spokesman for the central bank, announced in early April that the coronavirus outbreak had not interrupted the progress of the launch of the coin.

The initiative arouses interest in the population in the context of the pandemic. Since the virus can persist for a few hours on specific surfaces, and people do not trust the safety of banknotes and coins.

Payments made with the following Chinese sovereign digital currency could work “contactless,” that is, just by bringing two cell phones closer.

So far, the Chinese government has not announced an official date for launching the digitized yen.

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What about the development of the digital dollar?

While China continues to develop a digital version of its currency, the United States explores how the Federal Reserve can issue a digital dollar.

Other countries such as

  • Sweden
  • Canada
  • Switzerland
  • the United Kingdom
  • Japan

and the European Central Bank are also analyzing the advantages and risks of creating virtual money. That is regulated by governments and backed by the currencies of each nation.

At the last Davos Forum, held in January in Switzerland, the topic was on the table. Especially as China confirmed that the design of its digital yuan was finalized.

Nobody wants to be left-hand out of the race. Even less the US, which is unwilling to cede territory to China, risking the historical supremacy of the dollar.

Unlike types of digital representation of money used by commercial banking, (CBDCs) have their equivalent in the real world. That is, they are backed by money. Physical and subject to the regulations of each country.

A digital dollar, then, is like having paper dollars, but in the virtual world. They could bring from anywhere in the world and exchanging for tickets.

The main difference with other types of digital money is that they would issue by the Federal. And not, for example, by stages that trade cryptocurrencies.

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