A man counts 100 renminbi notes with the Chinese flag in the background.

Sheldon Cooper | SOPA pictures | LightRocket | Getty Images

GUANGZHOU, China – Interest in China’s digital yuan project could be driven in part by the rising price of Bitcoin, the Chinese central bank said Thursday, despite the fact that the cryptocurrency is effectively banned in the world’s second largest economy.

China’s digital yuan is an example of a central bank (CBDC) digital currency designed to replace some of the currency in circulation.

The People’s Bank of China (PBOC) sees this as a way of promoting cashless payments. It is effectively a digital version of the fiat currency. The central bank has been working on a digital currency since 2014.

Wang Xin, director of the PBOC research bureau, told reporters that market interest in the digital yuan is “very strong and everyone is paying close attention”.

“On the one hand, this has to do with the fact that more and more central banks around the world are involved in the development of domestic digital currencies,” Wang said, according to a CNBC translation of his Mandarin comments.

A number of central banks around the world – including Japan, the UK, Sweden, and Switzerland – are reviewing the issuance of their own digital currencies. China is probably the furthest ahead.

“On the other hand, this (interest) may also be related to the sharp rise in the price of Bitcoin,” said Wang.

The price of Bitcoin has repeatedly hit record highs in the past few months. This year alone it has more than doubled.

But China’s digital yuan is not like bitcoin.

The latter is a so-called decentralized cryptocurrency, which means that it has no central authority – like a central bank – to control it. Bitcoin also works with a technology called blockchain and it is currently unclear what the digital yuan will be based on.

We will push the digital RMB pilots and gain more experience.

Wang Xin

Director of the Research Bureau of People’s Bank of China

More digital yuan pilots ahead

So far, the PBOC has not given a timetable for the nationwide introduction of the digital yuan. But it has run a number of real world pilots in cities across China.

These often take the form of lotteries, where people in these cities can apply to receive part of a pool of digital yuan and then spend it at participating retailers.

During the Chinese New Year celebrations in February, Beijing authorities distributed around $ 1.5 million. Other big cities like Shenzhen and Chengdu had their own processes.

Wang said the pilots and “increase and also expand the scope”. It indicated further tests.

“Next, we will push the digital RMB pilots and gain more experience,” he said.