China has begun piloting its new digital currency e-RMB in four major cities

2 May, 2020 15:34
source: Singularity Financial

Singularity Financial Hong Kong May 2, 2020 – By Zohar Lee

China has begun piloting its new digital currency in four major cities, becoming the first nation to do so. The nation has reportedly begun trials in four cities, including Shenzhen, Suzhou, Chengdu as well as Xiong’an, and areas that will host some of the events for the 2022 Beijing Winter Olympics. It has been formally adopted into the cities’ monetary systems, reported state media outlet China Daily.

The three cities have a overall population of more than 38 million people. The Xiong’an New Area is a district and economic zone being developed near Beijing. There is no reaction yet from the international community.

The digital currency–known as the e-RMB–would be used for paying the April-month salaries to some government employees and public servants. According to local news reports the currency will be used to subsidise transport in Suzhou, while in Xiong’an the trial primarily focuses on food and retail.

China initiative to replace paper money with e-RMB (Digital Currency)

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”.

In addition, Global Government Forum, an online portal reported that 19 retailers–including McDonald’s, Starbucks and Subway–have been invited to trial the digital yuan in the Xiong’an New Area. However, Starbucks has since denied its involvement.

The PBOC 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.

At the same time, 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.

The Chinese central bank emphasizes that the e-RMB is a digitized version of Chinese currency, but other types of money supply and savings will remain unchanged.

PBoC Governor Yi Gang said earlier this month that cash issue, storage and recycling systems must also be updated to keep up with the e-RMB trial success.

Meanwhile, the PBoC’s Digital Currency Research Center charged with e-RMB research and development cautioned against a blockchain-based approach to digitalizing currency or associated payment systems.

Make Payments via e-RMB contactless

The preference for “contactless” payments is growing in the country, and expected to be more so due to social distancing measures in a post-coronavirus era. In the digital payment arena, there are popular platforms in China including Alipay, owned by Alibaba’s Ant Financial, and WeChat Pay, owned by Tencent. However, transactions on these platforms are made in existing currency.

Approach to make Payments via e-RMB is contactless, and transactions can be made via bluetooth and encrypted NFC when two mobile phones with electronic wallets approach each other. That’s different from Alipay and WeChat Pay or other online Payment application which relies on cellular networks, so you can use the e-RMB without the internet, just like paying physical cash.

e-RMB could be ‘functional alternative’ to dollar settlement

In an April 24 article, China Daily said the reliance on US dollar settlement allows the US to impose unilateral punitive sanctions on companies via the threat of exclusion from the SWIFT dollar settlement system.

“A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level. It may also facilitate integration into globally traded currency markets with a reduced risk of politically inspired disruption. The stability of the Chinese yuan during the COVID-19 crisis has enhanced its appeal to many investors. These two settlement systems–US dollar and China sovereign digital-may operate side by side or if need be, on a mutually exclusive basis,” read a recent opinion piece in the China Daily.