[Global Issue+] China Becomes Leader in Digital Currency from the World's First Banknote Issuing Country

Second Public Test Success Following October
Increased US Containment Expected...Concerns Over Threat to Dollar Hegemony

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The Chinese government has launched the second public test of the digital yuan following the first one in October. It has also announced that the test will be conducted in Hong Kong, where a different legal tender is used, raising expectations that offshore payments will soon expand. However, it is also anticipated that U.S. restrictions will intensify going forward. As the country that first issued paper money in the world, China is drawing attention to whether it will successfully secure another world-first title.

According to local Chinese media such as the Global Times, on the 12th, the People's Bank of China began a public test of the digital yuan in Suzhou, Zhejiang Province. Through a lottery, 100,000 Suzhou citizens were each given 200 yuan (approximately 33,000 KRW) in digital currency, totaling 20 million yuan, which can be used until the 27th at department stores, supermarkets, and online within Suzhou. Compared to the first test conducted in Shenzhen last October, the amount, usage locations, and number of participating citizens have all doubled. The Chinese government is expected to expand the scale of public tests further in the future.

China previously selected Shenzhen, Xiong'an, Suzhou, and Chengdu as pilot cities for digital currency projects and plans to continue public tests centered on 128 cities nationwide. Notably, Suzhou, where the current public test is taking place, has been one of the economic centers of China since ancient times and is famous as one of the regions where paper money was first used during the Song Dynasty. Marco Polo’s travelogue described Suzhou as the "Venice of the East." At that time, Marco Polo recorded his amazement, saying, "The Chinese people buy goods with paper."

Banknotes used during the Song Dynasty
[Image source=Bank of Korea Currency Museum]

Historically, China has played a very important role in the development of currency. While metal coins are known to have been first used in the Mesopotamian region of the Middle East, paper money was indisputably first issued by China. It was first issued in the 11th century during the Song Dynasty. By the 9th century Tang Dynasty, commerce had greatly developed in China, and merchants in various regions were issuing promissory notes, which were consolidated and standardized by the government in the 11th century to create paper money.

At that time, the Song Dynasty government collected promissory notes issued by various merchant guilds and issued standardized notes with a uniform design, declaring that the government would guarantee their payment. This was the birth of the world's first paper money. Before this, promissory notes issued by individual guilds often led to issues such as underground transactions, tax evasion, forgery, and intentional default, so the government took control by collecting all notes and guaranteeing their payment.

The current digital yuan also started in a similar context to the birth of paper money. With mobile payments like WeChat Pay and Alipay already widely used by the public, the Chinese government created the digital yuan. Unlike WeChat and Alipay, which mainly use QR codes, the digital yuan allows instant payment simply by bringing smartphones close to each other, making it more convenient. The Chinese government has incorporated blockchain technology into the digital yuan so that all transaction ledgers are transmitted to the central bank, the People's Bank of China. This is intended to eradicate underground transactions and help eliminate corruption, according to the Chinese government. However, some express concerns that the central government may excessively intervene in the market.

However, the greatest concerns are coming from the United States. There are claims that the digital yuan could shake the dominance of the U.S. dollar payment market and be misused for trade settlements with adversarial countries under U.S. sanctions. According to the conservative U.S. media outlet Washington Examiner, earlier last month, John Ratcliffe, Director of National Intelligence (DNI), sent a letter to Jay Clayton of the U.S. Securities and Exchange Commission (SEC), warning that "the issuance of China's state-backed digital currency could threaten the U.S." He expressed concern that "with half of the world's cryptocurrency mining farms located in China, the digital currency could allow China to dominate this sector." As U.S. restrictions are expected to intensify, the world will be watching whether the digital yuan will remain a world-first title for China following paper money.

This content was produced with the assistance of AI translation services.