China is in the process of introducing a digital version of its yuan currency. Photo: iStock

China has begun a process to provide legal backing for its central bank digital currency.

Draft legislation states that the yuan exists in both physical and digital forms. The bill will be put to public comment through November 23, Nikkei reports.

China aims to begin issuing the digital yuan before the Winter Olympics in Beijing in February 2022.

The bill also bans organizations and individuals from making or issuing digital currencies, apparently over concern that managing the money supply would become difficult if virtual currencies issued by the private sector circulate in the market. As a result, such cryptocurrencies as Libra, which has been proposed by Facebook, may not be allowed in China.

China conducted a large test of a payment system for the digital yuan in Shenzhen on October 12-18 but was met with a lukewarm consumer response. About 47,500 residents were each given 200 yuan ($30) in the digital currency and spent the money at about 3,400 stores in the city. Chinese monetary authorities hope to expand the test to more regions to quickly realize a full launch of the digital yuan.

If the digital yuan gains traction, Chinese regulators will gain a better grasp of overseas transactions, allowing them to prevent rapid fund outflows more easily. Beijing also likely aims to take a leadership role in international discussions on digital currencies.