China, which seeks to be the first major economy to launch a digital currency, is to trial a digital yuan in four urban areas – including payments of local government employees’ transportation subsidies.
The major cities of Shenzhen, Suzhou and Chengdu, as well as the Xiong’an New Area, will host what China’s official state-run Xinhau News Agency described as ‘internal closed pilots’.
The three cities have a combined population of more than 38 million people. The Xiong’an New Area is a district and economic zone being developed by the government near the capital Beijing.
Sina News reports that the currency will be used to subsidise transport in Suzhou, while in Xiong’an the trial primarily focuses on food and retail. The pilots’ aim in all locations is to “optimise and improve” functionality ahead of the wider rollout of the currency.
According to a report by the state-owned China Daily, a statement by the People’s Bank of China (PBOC) said that the digital currency – known as the e-RMB – “will not be issued in large amounts” for public use in the short term, and that the digital currency in circulation would “not lead to an inflation surge”.
The PBOC, the country’s central bank, will be the sole issuer of the digital yuan, initially offering the digital money to commercial banks and other operators. An official told the China Daily that the public would be able to convert money in their bank accounts to the digital version and make deposits via electronic wallets. Mu Changchun, head of the PBOC digital currency research institute, added that the technology allows the digital currency to be exchanged without an internet connection, and that it can be used to make contactless payments.
The government is yet to confirm a proposed timeline for the rollout of the digital yuan, but several local reports point towards a mid-2021 launch date.
Municipal employees and merchants to start trials
In a further development, the digital currency will be issued to local government employees in Suzhou in May, according to English-language digital assets news source The Block.
Municipal government employees in the city will receive half of their May transportation subsidies in digital currency, which will be issued to them by four state-owned banks: the Agricultural Bank of China, the Industrial and Commercial Bank of China, the Bank of China, and the China Construction Bank.
In addition, 19 retailers – including McDonald’s, Starbucks and Subway – have reportedly been invited to trial the digital yuan in the Xiong’an New Area. However, Starbucks has since denied its involvement.
China strives to be first
China’s Digital Currency Electronic Payment (DCEP) project – as the country’s progress towards a digital yuan is known – began in 2014. Central banks around the world are assessing the feasibility of launching their own digital currencies – so-called ‘central bank digital currencies’ (CBDCs). But China has regularly communicated tangible progress, as its central bank seeks to become the first to turn years of research and experimentation into reality.
The interest in CBDCs is being driven by factors including declining cash use and plans for privately owned ‘stablecoins’, such as Facebook’s proposed Libra. The Swiss Financial Market Supervisory Authority (FINMA) confirmed earlier this month that it had received an application for a payment system licence from the Geneva-based association governing Facebook’s planned cryptocurrency.
Earlier this month, Global Government Forum reported that the central banks of France and the UK had both moved forward in respect of CBDCs. The Banque de France has issued a call for applications to experiment with a CBDC for interbank settlements, and the Bank of England (BoE) has published a discussion paper as it assesses the risks and benefits of CBDCs.
Separately, China has in the past week made its Blockchain-based Service Network – or BSN – available for global commercial use, according to reports. The BSN, led by the Chinese government-backed think tank State Information Center, is a global infrastructure that claims to help projects create and run new blockchain applications for a lower cost. It also aims to accelerate the development of smart cities and the digital economy.