The People’s Bank of China (PBoC) has launched a digital version of its local currency Yuan, which enables individuals to send money to each other by just touching their smartphones together as opposed to physical exchange of notes.
While China says it will expand trials of its digital yuan on Friday evening the central bank aims for a full rollout of the digital currency by the 2022 Winter Olympics in Beijing, stressing that the goal is to make sending electronic money feel like having physical cash change hands.
Agency reports state that up to 1,000 people in Suzhou China will participate in a test of the new function – which can be used even without an internet connection – alongside a digital yuan “lottery” in the city.
Just as Huawei Technologies has rolled out phones that support the feature, observers say China wants to internationalise the yuan so that it can compete with the dollar.
According to diplomatic sources, China wants to break the US dollar’s stranglehold on the global financial system and gain greater control over how people spend their money, hoping a digital currency could deliver both.
After years of preparation, the country began rolling out an ambitious test of a digital version of the yuan earlier this year. Pilots exist now in four Chinese cities, where transactions totaling more than 2 billion yuan ($300 million) have already taken place.
If the program is expanded nationwide, China would become the most powerful economy yet to offer a national digital currency, beating a forthcoming digital version of the euro from the European Central Bank analysts say.
“The Chinese government believes that if some other countries can also use the Chinese currency it can break the United States’ monetary sovereignty. The United States has built the current global financial system and the instruments,” says an anonymous Chinese cryptocurrency observer known as Bitfool.
A successful test would bring China a step closer to its goal of a full-fledged launch by the time the Winter Olympics are held here in February 2022.
In the Suzhou pilot program, 100,000 people will be chosen to receive 200 yuan ($31) each, which can be used to buy products at stores in the city. The currency may also be used on e-retailer JD.com, which will become the first online platform to accept it.
The trial is timed to see whether the platform can handle digital yuan payments without a hitch under heavy stress. Online retailers offer steep discounts on December 12 – a shopping event known as “Double 12” – and usually see a flood of orders right when the day begins at midnight.
Findings confirmed that tests are also moving along in other cities and people invited in Chengdu by employees at major banks are allowed to download a wallet app that can freely convert cash into digital yuan. The electronic currency can be spent at local supermarkets and other stores, and used to pay bills for smartphone service.
The Xiong’an New Area, a city in Hebei Province, now allows customs authorities accept security deposits in digital yuan from importers. The People’s Bank of China and the Hong Kong Monetary Authority have launched technical trials of cross-border payments using the currency.
“In the event that the PBoC would like to explore the use of [digital currency and electronic payments] in places outside of the mainland, including Hong Kong, the government and the HKMA will actively respond and collaborate,” wrote Christopher Hui Ching-yu, Hong Kong’s secretary for financial services and the Treasury, in October.
More than 47,500 people received 200 yuan each, usable at restaurants and stores. After testing applications such as person-to-person transfers, online retail, and taxes and utilities, China’s central bank aims for a full rollout by the 2022 Olympics.
Shenzhen, Suzhou, Chengdu and Xiong’an, along with Olympics venues, were picked for the first round of tests. The plan is to run trials in 28 areas, including Beijing, Tianjin, Shanghai, Guangzhou and Chongqing, covering the country’s largest cities.
In addition to the tests, China has also been laying legal groundwork for the system. Draft legislation to make the digital yuan legal tender was released in October.
And China filed for 130 patents tied to the digital yuan by April 2020, according to Sun Lijian, professor of finance at Fudan University in Shanghai. “They cover the entire process, from issuance and circulation to related apps,” Sun said.