Central bank of China has confirmed that internal trials for digital currency are now underway in Shenzhen, Suzhou, Chengdu, and Xiong'an.

China has put substantial research and development efforts and placed the project high on its priority list and no other country has made as much progress as China in trialling digital currencies.

Hong Kong Bitcoin Association president Leonhard Weese told, he believes the digital currency is an attempt at making a fast and cheap settlement system for the financial services industry, similar to Hong Kong's Faster Payment System and something that is more user friendly than Europe's Single Euro Payments Area, but he noted it would be different because funds are held directly within the central bank.

The main difference that people will feel is that it will be much easier to move funds between WeChat and Alipay and all the insurance, lending, trading, and investment apps that exist. It breaks the economies of scale of a payment app.

I look at this really meeting several goals. But, I think the bigger opportunity here is this is a way for the Chinese yuan to be distributed globally,” Circle CEO Jeremy Allaire told CNBC’s “Squawk Box”

The U.S. dollar is currently the world’s “reserve currency” - about 58 percent of all foreign exchange reserves in the world are in U.S. dollars, according to the IMF, and about 40 percent of the world’s debt is denominated in dollars.

Mu Changchun, deputy director of the PBOC’s payments department, said that the new digital currency will have similarities to Facebook’s proposed Libra coin. It would be as safe as central-bank issued paper notes, he claimed, and could be used on platforms such as Tencent’s WeChat and even without an internet connection.

China has now been reported to be working to become the first nation which will be implementing a total central-bank digital currency (CDBC) into limited use.

This move from the Chinese government came in the light of recent events related to the worldwide outbreak of the coronavirus which originated in Wuhan. All the banks in China had to literally start cleaning all the paper currency because of the suspicion of them being contaminated by the deadly COVID-19 virus.

Dozens of central banks have begun to look into digital currency, and the users would theoretically be able to use and transfer cash by using Bluetooth.

But a digital currency could also give the Chinese government a powerful tool to easily monitor and manipulate spending, more so than it is already accused of doing. China would also be able to track all the money in circulation, making it difficult to launder money or evade taxes.

According to Citic Securities, the total size of China’s digital currency over the coming years could definitely reach 1 trillion yuan or about 140 billion U.S. dollars. This would essentially mean about one-eighth of China’s cash would already be completely digitized. To put things into context for comparison, the current total market cap for all digital currencies, including popular Bitcoin cryptocurrency, is close to about US $200 billion.

Now, given the risk involved in processing this change from traditional currency to digitised currency, China could opt for rolling it out in phases gradually.

It is being estimated by the firm Citic Securities that it could easily take several years before China’s digital yuan could replace just a meagre 10 per cent of all physical cash in the country.