China Envisions Its Digital-Currency Future, With Lotteries and a Year’s Worth of Laundry
In the latest trial, residents in the city of Suzhou won a share of 20 million “digital yuan” to spend on online or offline purchases
Signage for the digital yuan at a checkout counter in a supermarket in Shenzhen, China, in November.
PHOTO: YAN CONG/BLOOMBERG NEWS
By Jonathan Cheng
Dec. 27, 2020 6:00 am ET
BEIJING—The People’s Bank of China on Sunday concluded its second digital-currency pilot program, as the central bank moves closer to a formal rollout that would make China the first major world economy to introduce such a system.
This month, authorities in the eastern Chinese city of Suzhou handed out 20 million digital yuan, equivalent to $3.1 million, to local residents via a lottery. Each of the 100,000 winners received 200 yuan in the new digital currency, which could be spent on online or offline purchases.
The Suzhou pilot included twice as many residents and three times as many merchants as one conducted in October in the southern Chinese city of Shenzhen, the first such trial of the government-backed digital currency.
The trial in Suzhou also expanded the scope of the pilot program by testing the digital yuan on online stores and by introducing an electronic-payment method that doesn’t require an internet connection.
Wang Ju, a 39-year-old Suzhou resident who was selected to participate in the pilot, was impressed to find a pastel-colored replica of a yuan bank note featuring state founder Mao Zedong in her digital-wallet app after following the instructions.
CHINA’S PUSH FOR A DIGITAL YUAN
“It’s amazing,” said Ms. Wang, who spent all of her allotted currency buying enough laundry detergent to keep her family’s clothes clean for a whole year. Ms. Wang chose to spend the money at JD.com Inc.’s online shopping platform, which was offering big discounts during its annual “Double Twelve” shopping festival that began on December 12.
Chinese authorities also teamed up with other technology giants, including Meituan and Didi Chuxing Technology Co., to test the use of digital yuan for services such as food delivery and ride hailing respectively.
To buy all that detergent, Ms. Wang had to top up with five yuan from her account at Industrial & Commercial Bank of China Ltd. , since it exceeded the 200 yuan she received from the central bank. “It went through smoothly, like other online payments we did,” she said.
In the first 24 hours of the Suzhou trial, JD.com recorded nearly 20,000 orders paid in the digital yuan, the company said this month.
Besides testing payment on online stores, Suzhou also experimented with the digital currency’s offline-payment function, a feature touted by officials to differentiate the new platform from the electronic payment services already ubiquitous in China, a country where payments are already increasingly cashless.
Unlike payments made through Ant Group’s Alipay and Tencent Holdings Ltd. ’s WeChat Pay, the central bank’s offline-payment feature doesn’t require an internet connection, which could facilitate payments in areas with poor cellular service, officials said. A brief tap of devices between consumer and vendor can process the transaction.
Perhaps even more enticing for many merchants is that the new digital currency offered by the central bank doesn’t involve transaction fees, unlike Alipay, WeChat Pay and Chinese commercial banks.
‘I don’t think it’s about seeing who’s buying diapers or cigarettes today. It’s about having more of a real-time understanding of how money is moving in the economy for more of a macro targeting procedure.’— Martin Chorzempa, research fellow at the Peterson Institute for International Economics
One Suzhou merchant who participated in the pilot program welcomed both functions. Located on the ground floor of a shopping mall, the nut store often encountered problems with poor cellphone signals when consumers used WeChat Pay or Alipay.
After the nut vendor was chosen to take part in the Suzhou trial, China Construction Bank Corp. , the country’s No. 2 lender by assets, which also assisted the government in experimenting with the new currency, gave the store a domestically-produced smartphone that enables offline payments.
“We just needed a few touches of two cellphones to make the payment go through. It happened in the blink of an eye,” said the store’s manager, Mr. Ma, who declined to give his full name.
The lack of processing fees was another inducement, he said, saving him the three or four yuan for every 1,000 yuan processed that banks and payment firms generally charge. “To be frank, I prefer the digital currency which is backed by the government and charges no payment fee,” Mr. Ma said. “It saves a lot of money.”
China’s central bank said it began work on its digital currency—known as “digital currency/electronic payment,” or DC/EP—in 2014. It has said that the new yuan is a digital extension of physical fiat money endorsed by the government, describing the new currency’s purpose as being to replace some of China’s monetary base—cash in circulation.
Similar to China’s existing commercial digital-payment platforms, consumers must first download a digital wallet onto their smartphones, where they can store money and generate a QR code that is then scanned for payment during each transaction, according to the Suzhou and Shenzhen trials.
For the central bank, part of the appeal of the new digital currency is to create a public alternative to Alibaba and Tencent’s payments duopoly, and to gain more access to transaction data, says Martin Chorzempa, a research fellow at the Washington-based Peterson Institute for International Economics.
“I don’t think it’s about seeing who’s buying diapers or cigarettes today,” he said. “It’s about having more of a real-time understanding of how money is moving in the economy for more of a macro targeting procedure.”
Once it is in widespread use, the digital yuan could also give Chinese regulators more information on money flows, they have said, helping authorities track money laundering and terrorist financing.
Analysts have separately predicted the new currency could allow the central bank to put negative interest rates on cash in extreme economic circumstances, to encourage consumers to spend.
Though it has conducted several rounds of trials, both in public and in private, Chinese government officials haven’t offered a concrete timetable for a full rollout. Chinese central bank Gov. Yi Gang has said only that more rules and regulations are needed.
