Digital currency is a broad concept. According to the Bank of England, it refers to payment methods that exist only in electronic form. There are two main types of digital currencies.

The first is the Central Bank Digital Currency (CBDC), which is issued by central banks and represents legal tender in a cryptographic digital form. These are not physical entities and are used for online investments, transactions, and storage of value.

The second type is privately issued digital currencies, also known as virtual currencies. These are developed and controlled by private developers, not regulated by governments, and circulate within virtual communities. A prime example of this is Bitcoin. Simply put, digital currency, like traditional money, can be used to purchase physical goods and services.

How is Digital Currency Different from Alipay/WeChat?

Some might wonder how digital yuan (China's digital currency) compares to platforms like WeChat and Alipay, which we are all familiar with. According to China UnionPay's 2020 Mobile Payment Security Report, 98% of respondents consider mobile payment their most frequently used method, showing a 5% increase from the previous year. Among these users, 85% use QR code payments, which has also risen by 6% compared to 2019.

Mobile payments have already become an integral part of our daily lives, from paying bills, shopping online, and booking tickets, to even buying street food with just a quick scan. So, are digital currencies and mobile payments opposing concepts? Not at all. Think of WeChat and Alipay as our digital wallets, acting as the infrastructure for mobile payments. Meanwhile, digital currency is the actual money in these wallets.

One major advantage of digital currency compared to WeChat and Alipay is the ability to make payments offline. Even when there's no network or a weak signal, you can still transfer money or make payments. Just take out your phone, “tap” or swipe, and voilà, your transaction is completed.

Will Cash Be Replaced by Digital Currency?

As technology advances, both international organizations and many central banks continue to promote the adoption of digital currencies. So, will cash eventually be replaced? According to data, by the end of 2019, cash was still primarily used by children and the elderly. These groups account for 16.8% of the population under 14 and 12.6% over 65. Many in these groups lack independent payment abilities or have a slower adaptation to new technologies. In fact, some stores now only accept mobile payments, leaving cash payments out of the equation, which can cause inconvenience for children and the elderly.

Another group resistant to mobile payments is rural populations. As of 2019, over 40% of China's population lives in rural areas, where many people still believe cash payments are more secure than mobile payments, and some are reluctant to adopt mobile payment methods.

Cash and Digital Currency: Not Competing, But Coexisting

In China, cash, specifically renminbi (RMB), is issued by the People's Bank of China. Banknotes have no intrinsic value on their own; they merely serve as a symbol of value. Their issuance is limited by the amount required in circulation. Despite the rise of digital currencies, we should not overlook the importance of cash in our society, much like public phone booths that are slowly disappearing but still have a place in some cities as a historical reminder.

Digital currency, Alipay/WeChat, and cash are not in competition. To avoid the "digital divide" and ensure inclusivity, the digital yuan still has a long road ahead. In a “smart” city, all three can coexist, serving different needs in the payments and financial systems. This coexistence is key to ensuring that people of all backgrounds can participate in the evolving financial ecosystem.

Conclusion: The Future of Digital Currency

As we can see, digital currency is an exciting and evolving field. It offers new possibilities for payments, investments, and storage of value, making transactions easier, faster, and more secure. However, it's clear that while cash might be fading from the spotlight, it will still play a role in many communities. As digital currency continues to develop, it's essential to ensure that it serves everyone, including those who are not yet ready to embrace the digital world.

So, what do you think, Lykkers? Are you ready for digital currency to become a part of your everyday transactions, or do you prefer to stick with the old-school ways? Let's chat about it!