Asia is a step ahead of other regions in developing central-bank digital currencies, with China, Hong Kong and Thailand set to roll out sovereign virtual tokens as a means of payment and to better monitor money flows.
One thing these central banks have in common is that they are all planning to partner with commercial banks in rolling out their digital tokens. But China will for now limit their use to domestic retail payments, unlike Hong Kong and Thailand, which are exploring their use for cross-border payments in bilateral trade.
Given its retail focus, China's central bank, the People's Bank of China, is keen to differentiate its digital currency from cryptocurrencies.
Mu Changchun, deputy director of the PBOC's payment and settlement department, said its "digital currency electronic payment" project involves digital yuan intended solely for the payment of goods and services. It should not be confused with cryptocurrencies, the trading of which authorities have clamped down on.
"It is different to bitcoin or stable tokens, which can be used for speculation or require the support of a basket of currencies," Mu was quoted by the Shanghai Securities News earlier this month as saying.
The PBOC's ultimate goal is to replace cash " notes and coins changing hands anonymously " with its digital yuan.
China's new digital currency 'isn't bitcoin and is not for speculation'
Mu had in November said that the PBOC would launch its digital currency "imminently", though no timeline has been specified. Industry players expect China to be among the first few central banks globally, including Sweden, to roll out a sovereign digital currency.
The PBOC started researching the prospect of creating its own digital currency as early as 2014 to counter the dominance of the country's two mobile payment giants, Alipay and WeChat Pay, which today account for 96 per cent of mobile payments in China.
Online payments processed by non-bank operators totalled 181.3 trillion yuan (US$25.9 trillion) in the first three quarters, PBOC data shows.
The two operators have become "systemically significant infrastructure" operators in China, Mu said during a panel discussion during Hong Kong's fintech week in November. This has prompted the PBOC to consider its own digital currency as a way of providing a contingency payment option in the event of technical problems that could harm the nation's financial system.
Edmond Lau, senior executive director of the Hong Kong Monetary Authority (HKMA), revealed at the same event that the HKMA's collaboration with the Bank of Thailand on a central bank digital token project could support cross-border payment and foreign exchange settlement for banks and companies, using blockchain technology