What is China's Sovereign Digital Currency? What is the difference between Digital Currency and Cryptocurrency?
Amid the coronavirus distress globally, China has started testing its official digital currency. However, the People's Bank of China has not yet officially accepted the digital currency and therefore it is unofficially known as 'Digital Currency Electronic Payment' or DCEP.
China has not yet officially released its digital currency but internal pilot tests are underway in four different cities of China. It is expected that China may officially announce the digital currency and towards the end of 2020, it will be made available for the general public.
If the People's Bank of China officially announces the digital currency, then it would be the world's first Central Bank Digital Currency (CDBC). After the official announcement, China's digital currency is expected to reach one trillion yuan ($140 Billion) and will be equivalent to approximately China's one-eight cash.
People would be able to use the digital currency through an electronic wallet application. The people will be required to link the wallet to a bank card for digitally transferring the money. The money transferred by a user will be converted into digital cash on a one-to-one basis.
People may opt-out to hold a bank account for making transactions via digital currency. The best part is that the transactions can be made even without an internet connection through 'touch and touch' technology, where users can simply touch their devices for doing transactions with no payment record with the bank or third parties.
What RBI says about Digital Currencies?
In 2018, India's central bank, i.e., RBI banned cryptocurrencies as they frequently fluctuate in value. In addition to this, RBI stated that the cryptocurrencies include many risks such as money laundering, terrorism funding, operational risks for users, etc. However, India is of the view of launching a sovereign digital currency (backed by RBI) as and when needed.
After the cryptocurrency was banned in India by RBI, Internet and Mobile Association of India (IAMA) challenged this in Supreme Court. IAMA cited that dealing and trading in cryptocurrency was a legitimate business and RBI do not have any jurisdiction over it as cryptocurrency is a commodity and not a currency. Thus, the Supreme Court turned down the circular by RBI issued in 2018.
What is Digital Currency?
1- Digital Currency is a payment which can only be made electronically.
2- Digital Currency can be transferred to several entities/users via different online methods.
3- Digital currency is the same as cash (physical currency) but unlike cash, the digital currency can be transferred instantly. A borderless transfer can also be done via digital currency.
What is Cryptocurrency?
1- Cryptocurrency is a type of virtual currency that uses cryptography for security.
2- Cryptocurrency allows users to use decentralized technology to ensure secure payments made by users. Users can also save the currency without providing their names or visiting a bank.
3- Cryotrocurrency runs on a distributed public ledger which is known as blockchain which records every single transaction made or held by the users.
4- The most common cryptocurrencies are Bitcoin, Libra, Ethereum, Ripple, Litecoin, etc.
As per the Chinese officials, the database can be checked in real-time and will help in keeping digital records and checks against citizens who have committed money laundering, tax evasions or other related offences.