China has started testing its government-backed digital currency in some regions before it is introduced to the public, aiming to replace paper notes and coins in circulation, according to the People's Bank of China, the central bank.

At present, the trials are being conducted in a closed environment and not connected to the existing sovereign currency issuance and circulation system. Pilot programs have been launched in Shenzhen, Suzhou, and Chengdu, as well as in the Xiongan New Area, Hebei province, said a senior official from the digital currency research institute of the PBOC, who did not want to be identified.

Some of the payment scenarios related to the Beijing 2022 Winter Olympics are also undergoing tests, he said.

"In the short term, the central bank's digital currency will not be issued in large amounts for the public and the velocity of the money in circulation will not be influenced or lead to an inflation surge," said a statement on the PBOC's official WeChat account on April 18.

The PBOC will be the sole issuer of the "digitalized renminbi", and will originally offer the digital money to commercial banks or other operators, which is still in a centralized issuance system. The public can transfer the money in their bank accounts to the digital version and deposit the same in "electronic wallets", the official said.

To avoid excessive money issuance, commercial institutions should set aside provisions equivalent to their digital money holdings, he said.

The PBOC started research on its digital legal tender in 2014. The State Council, the nation's cabinet, approved the PBOC's digital currency development program at the end of 2017, jointly with some qualified commercial banks and institutions. The central bank called the new money as"digital currency and electronic payment", or DC/EP.

Zhou Xuedong, a spokesman of the central bank, disclosed at a news conference on April 10 that the digital currency launch has not been disrupted by the novel coronavirus outbreak.

The COVID-19 epidemic can persist for a few hours on hard surfaces, and there is probability of transmission via physical money — paper notes and coins, as they are frequently touched objects. The pandemic has led to unprecedented public concern about viral transmission via cash. Many central banks have taken measures to ensure the safety of using cash.

Raphael Auer, an economist with the Monetary and Economic Department of the Bank for International Settlements (BIS), said that in the context of the current global health crisis, central bank digital currency (CBDC) would in particular have to be designed with access options for the layman and have contact-free technical interfaces suitable for the entire population.

"The pandemic has highlighted the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats," he said.

Payments via the upcoming Chinese sovereign digital currency could be contactless and the transaction can be achieved when two mobile phones with electronic wallets get close to each other, Mu Changchun, head of the PBOC digital currency research institute, said earlier.

Different from Alipay and WeChat Pay that rely on the internet, the technology used by the PBOC allows the digital currency to be exchanged without the internet, just like using physical cash, said Mu.

China could be one of the leading countries in the world to have a retail-based central bank digital currency, said analysts.