What Merchants Need to Know about China’s Digital Yuan

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Just as paper bills have replaced precious metal coinage, someday electronic currencies may replace cold hard cash. China is out in the vanguard of this digital revolution, having created a virtual currency widely known as the digital yuan—the first such currency to be issued by a sovereign nation and backed by its government.

With China’s regional influence and economic muscle behind it, the digital yuan could have a big impact on the future of digital payments and other electronic transactions. What implications does the digital yuan hold for ecommerce merchants and other participants in the global economy?

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While some governmental bodies have experimented with accepting payments in digital currencies like Bitcoin, the digital yuan is the world’s first central bank digital currency. Issued by the People’s Bank of China, it is legal tender on equal standing with their official currency, the renminbi.

First introduced in April 2020, the digital yuan was rolled out for testing in four Chinese cities, with six more test cities added earlier this year.

Efforts to expand and promote the use of the digital yuan are expected to escalate in anticipation of the 2022 Winter Olympics in Beijing, where international visitors may be granted the first opportunity to own and spend this new form of currency.

Stateside merchants probably won’t have to worry about accepting digital yuan payments from their customers in the immediate future, but just as the European Union’s GDPR changed the web even for merchants and users who weren’t subject to its jurisdiction, the digital yuan could have a profound effect on the shape of the digital payments landscape.

As China gears up to put more of this new virtual currency into circulation, merchants can prepare themselves by learning more about how the digital yuan is supposed to work.

What is the Digital Yuan?

Officially known as the Digital Currency Electronic Payment, the digital yuan is a virtual currency issued by China’s central bank, equivalent in value to currency issued in the form of renminbi banknotes and coinage.

The digital yuan is not a cryptocurrency and does not rely on blockchain technology.

Developed in collaboration with China’s commercial banks and technology sector, the digital yuan is designed to allow for instantaneous global transactions, even between offline devices.

To get the digital yuan into Chinese consumers’ hands, lotteries were held in the test cities and millions of dollars of digital yuan were given away to winners. Recipients had to download bank-developed apps in order to manage their digital yuan, which they could spend at various participating stores. Currently, a commercial bank account is required to receive and spend digital yuan, but that is expected to change in the future to allow non-citizens to use the currency.

Why Did China Create the Digital Yuan?

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyChina has cited the overall decline in the use of cash, the costs of storing and handling cash, and the risks of leaving the digital payments system entirely in the hands of private companies as the main reasons why the digital yuan was developed.

The digital yuan also holds promise for consumers who don’t have access to traditional banking systems. Many Chinese citizens are unbanked, and once the digital yuan is decoupled from the commercial banks that have led the testing rollout, these individuals will have a new, more secure way to store funds and participate in the digital economy.

China also sees the digital yuan as a way to reduce fraud, money laundering, sales of illicit goods, and other financial crimes, citing the fact that cash is completely anonymous and can be impossible to trace. Skeptics of China’s policies have pointed out that it will be trivially easy for the government to surveil digital yuan transactions and keep tabs on how its citizens are spending their money.

It’s also quite possible that China could make these digital funds instantly vanish from the account of any user who appears to be engaged in illegal activities. The same mechanisms that allow them to instantly distribute digital yuan to test users could also be used to snatch that money right back.

Lastly, the digital yuan could be a way to increase the importance of China’s currency to the global marketplace. If the digital yuan becomes a major player in the digital payments space, this could boost its use in cross-border settlement transactions and make a strong case for using the renminbi as an international reserve currency. It could also make it easier for China to engage in transactions with countries like Russia and Iran that the United States has placed under economic sanctions. 

What Does the Digital Yuan Mean for eCommerce?

Right now, apps like Alipay and WeChat Pay are the leading providers of digital payment platforms in China. That could change as the digital yuan creates opportunities for banks, phone companies, and other providers to create their own implementations. With the People’s Bank of China literally handing out sizable sums of digital yuan for testing purposes, you can bet that merchants with a presence in China are eager to start accepting this new currency.

The idea of issuing units of digital yuan with an expiration date has also been floated. If you don’t spend it in time, poof—it’s gone. This might not sound very appealing, but it could have benefits in the context of economic stimulus payments. If the money isn’t going to last forever, there’s no reason to hoard it—you might as well spend it on consumer goods.


For now, U.S.-based merchants can watch with interest as China rolls out its virtual currency to new markets and observe how businesses and customers adapt to the changes it brings.

As a harbinger of government-issued virtual currencies yet to come, the digital yuan is sure to set important precedents, and may provide some cautionary examples as well.

While this currency has no connection to the payment card industry and its chargebacks, the potential for banks and the government to instantly deduct funds from user accounts provides a possible glimpse into the digital chargebacks of the future. No matter what form our money takes, there will always be a need for merchants to stand up for their rights and be vigilant about protecting themselves.

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