China’s long-anticipated digital yuan has arrived in the wallets of some ordinary citizens.
Beijing began exploring a digital currency in 2014, with the project going into high gear in 2017—the same year the country cracked down on cryptocurrency trading. The digital yuan is very much not a cryptocurrency; like the regular yuan, it is under the control of the People’s Bank of China, and will be rolled out with the help of the country’s largest commercial banks. After conducting small-scale trials earlier this year, China began its largest test yet yesterday, with 200 yuan ($30) worth of the virtual money issued to 50,000 citizens in the southern tech hub of Shenzhen through a lottery.
The pilot comes as the Chinese president Xi Jinping prepares to visit Shenzhen tomorrow (Oct. 14) to celebrate the 40th anniversary of the country’s establishment of its first special economic zone, a milestone of China’s reform era. Beijing hopes to turn the city into a major fintech hub, one at the forefront of the digital economy, while clamping down on the most prominent Chinese financial hub yet—Hong Kong—which is increasingly mired in US-China tensions.
To redeem the virtual money, participants need to first download the pilot version of the digital yuan wallet app on their mobile phones through a link sent by the government, as the app has not been made public yet. Then they can see the currency (pictured below), which looks like a folded 100 yuan bank note, show up in the app, according to the Chinese publication the Economic Observer.
A first look at the DCEP / digital yuan. Who’s next? pic.twitter.com/y4reOPJPWR
— Thibault Schrepel (@LeConcurrential) October 12, 2020
The wallet requires users to tie up their accounts with one of four major Chinese commercial banks in order to receive the money, and they can also top up the account using their bank accounts after spending the 200 yuan. The color of the digital currency shows up as either red or blue based on which bank they use, according to Chinese media the Paper.cn. After opening the app, users scroll up to pay or scroll down to make payments by scanning barcodes of vendors or having their codes scanned, similar to using Alipay and WeChat Pay, according to the outlet. They can spend the digital money at over 3,000 vendors, and top up the wallet from their bank accounts once they’ve spent the 200 yuan.
The government’s digital wallet could create a challenge for the two private digital wallets, owned by the Ant Group and Tencent, respectively, though it’s not yet clear exactly how aggressively the state intends to compete with them.
What is clearer though, is that the impact of the digital currency on the global standing of the yuan could be more lackluster than Beijing hopes, if the rollout doesn’t come with reforms in how China controls its currency. Surveillance fears could also be a hurdle to the digital yuan, which will make it far easier for the Chinese government to track spending.