A common sight nowadays in China – especially during Chinese New Year – is people bowing their heads busy looking at their mobile phones and picking red packets on Wechat. Just as e-wallets have started to thrive, so transactions without cash have become more acceptable among customers and vendors.

But have you really ever thought about transferring your money to someone by sending a series of codes or by sending an email? According to government officials, as reported on state-owned media, China may become cashless in the next “three to five years”, with a new cryptocurrency issued by the People’s Bank of China (PBoC). It is likely that PBoC will become the first central bank to issue and adopt digital currency.

According to Chinese media, a digital notes trading platform based on blockchain designed by PBoC has already been successfully approved; the PBoC’s cryptocurrency is being tested on this platform. Moreover, a cryptocurrency research laboratory was officially launched after Chinese New Year in a bid to speed up the R&D process.

Unlike payment tools such as Alipay and WeChat Pay, the PBoC’s cryptocurrency is a legal digital currency, in that it is a legal substitute and complementary of cash that can be used to purchase goods and services. PBoC will first distribute the cryptocurrency to commercial banks, and then banks will distribute the currency to the customers. Physical delivery will be replaced by digital transfer, and transaction information will be stored on the cloud.

According to a report from Noah Wealth Management, if the cryptocurrency comes into practice, asset managers and banks will be able to choose to make deposits in PBoC’s account instead of lending to the shadow banking sector. It is also easier for PBoC to implement its monetary policy and operate a closer monitoring of transactions.

“Cryptocurrency issued by central banks can help regulators to keep track of the money flow and reduce money laundering, tax evasion and violations of capital control when necessary,” notes Sheng Songcheng, head of the statistics and analysis department at the PBoC.

Currently, Bank of Canada, Deutsche Bundesbank and the Monetary Authority of Singapore are also testing their own cryptocurrencies.