China will launch its own digital currency after five years of research, said Mu Changchun, deputy director of the People’s Bank of China (PBOC) payments department, at a recent finance forum, Beijing News reported on Aug. 14.

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The digital currency is not equal to digitalizing currency as currently exists. Instead, the country is leading a major reform to its monetary system by introducing cryptocurrency, which is based on internet technologies, especially blockchain.

Mu noted that the issuance of Chinese digital currency would rely on a two-tier system where the central bank would exchange digital currency to banks and institutions who would then supply digital currency to the public.

In fact, the digital currency to be issued by the PBOC is functionally different from e-payments. Customers are allowed to trade digital currency for other currencies without bank transfers. Besides, digital currency can circulate in all situations, which will facilitate renminbi internationalization and enable controllable anonymous trades.

Predictably, the era of digital renminbi is approaching, and legal tender issued by the PBOC will bring positive influence.

Upon issuance, more derivatives will occur, including digital credits, digital assets and digital debts, which means both opportunities and challenges for commercial banks and other financial institutions.

Furthermore, digital currency will aid the central bank in anti-money laundering and counter-terrorism financing. The central bank will have more effective regulation and control over currency and introduce more monetary policies.