As global authorities like the FCA respond to threats from private digital currencies such as Bitcoin and Facebook’s Libra, China has nationalized their own Central Bank Digital Currency (CBDC) and is trying to normalize it in the most unlikely of ways.
The Government and the People’s Bank of China are conducting a lottery in Suzhou, where 100,000 of the winners will receive “red packets” via a special app. Each prize is worth 200 yuan, and there is a total of 20 million yuan up for grabs ($3 million USD). This is the second experiment of this kind in China. The goal is to normalize the use of the digital currency among residents of China, in a move which could see the Chinese Government firmly in control of its citizens’ spending data. Experts at Goldman Sachs forecast that the new digital currency could have an uptake of around 1 billion people in ten years time.
“In 10 years we expect DC/EP to reach 1 billion addressable users, 1.6 trillion rmb ($229 billion) in issuance, 19 trillion rmb ($2.7 trillion) in annual Total Payment Value (TPV) and account for 15% of total consumption payments,” the Goldman Sachs report said.
JD the First to Accept Yuan Digital
JD.com (JD), which is the largest online consumer retailer in China, is the first to accept Yuan Digital through its e-commerce platform.
Huawei announced last month that it would add a Digital Yuan Wallet to its latest smartphones, the Mate 40. The digital currency can also be used when the smartphone has no Internet connectivity. This sets it apart from Alipay and WeChat Pay, two giant wallet apps that are used for payments. The Yuan Digital is only considered a form of payment.
ANZ Bank Chief Economist for Greater China, Raymond Yeung, said, “The offline payment function means the digital yuan can function essentially as the paper currency as it does not require the use of the internet, which is a major difference between the virtual money and Alipay and WeChat Pay…which payment tool can grab the most users will come down to which platform can provide users the most benefits.”
Deeper Insight into the Spending Habits of Citizens
China has been working on digitalizing its national currency for six years, in the hope that it will allow the Government to gain deeper insight into the spending patterns of its citizens and to gain control over the supply of money.
Mu Changchun, head of the digital currency research institute at the People’s Bank of China (PBoC), has stated that the new digital currency will not completely replace fiat currency like coins and notes.
Speaking at a recent conference, Changchun said, “We know the demand from the general public is to keep anonymity by using paper money and coins… we will give those people who demand it anonymity in their transactions…That is a balance we have to keep, and that is our goal.”