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China’s Digital Currency Could Challenge Bitcoin and Even the Dollar

Authorities are testing a new kind of money in four cities.

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Illustration: Khylin Woodrow for Bloomberg Businessweek
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People in China are no strangers to digital payments—if anything, it’s easier to move around and shop in Shanghai or Beijing with an Alipay or WeChat Pay smartphone app than it is bearing a pocketbook filled with yuan notes. Now the Chinese government has begun a pilot program for an official digital version of its currency—with the likelihood of a bigger test at the Beijing Winter Olympics in 2022. Some observers think the virtual yuan could bolster the government’s power over the country’s financial system and one day maybe even shift the global balance of economic influence.

Most money that gets swapped around electronically is just credits and debits in accounts at different banks. China’s digital cash is designed to be an electronic version of a banknote, or a coin: it just lives in a digital wallet on a smartphone, rather than a physical wallet. Its value would be backed by the state. But virtual cash would be quicker and easier to use than the paper kind—and would also offer China’s authorities a degree of control never possible with physical money.