Another Round Of Digital Yuan Test To Kick-off In Shenzhen On January 7
China has continued with the process of testing its Central Bank Digital Currency (CBDC), otherwise known as Digital Currency Electronic Payment (DCEP). This time, the real-life test has returned to the city of Shenzhen where a similar test was carried out in the last quarter of 2020, precisely during the month of October. The upcoming test, which is planned to kick off on January 07 2021 will be the first prominent effort in the digital yuan development since the new year. The exercise is expected to last until January 17.
This time around, the Shenzhen government is giving away 20 million digital yuan, which is equivalent to $3 million. This will be broken down into 100,000 packets, each packet valued at 200 yuan, equivalent to $30. The participating merchants for this exercise are 10,000 in number, cutting across shops, restaurants, and supermarkets within the city.
This exercise is upscale when compared to the previous real-life test that took place in the city of Shenzhen last October. For the October exercise, only $1.5 million worth of digital yuan was distributed among 50,000 city residents, and the number of local stores where they could spend the money was only 3,000.
The volume for the upcoming digital yuan test in Shenzhen matches what was obtained in a similar test that took place in the city of Suzhou in December 2020. The Suzhou test which was generally regarded as a success saw 96,614 winners collect their digital yuan and almost all of the $3 million lottery money was spent during the period of the exercise. This is according to a report from government sources in a WeChat post. The digital yuan test in Suzhou ended on December 27 2020.
CBDC Benefits to China
China’s effort in the development of the digital yuan is second to none. As a matter of fact, there are speculations already for a possible introduction of the product into the mainstream before the end of 2021. Perhaps, the obvious efforts being put in place by the Chinese government towards achieving this project could justify the proposed benefits that it is expected to bring to the far-east country.
Among the benefits that have been projected for the digital yuan includes helping China to internationalize its currency. This is crucial considering China’s dominance in the international trades sector. Also, the introduction of the digital yuan will effectively promote the yuan as a rival or an alternative to the US dollar which for a long time has posed as the universal currency.
In order for China to be able to improve upon its surveillance capabilities, especially in the areas of both local and international transactions, the blockchain-based digital yuan will represent a significant factor. It will help China to enable control and monitor the activity of participants in its economy both within and outside of its shores. Also, the digital yuan could be a timely intervention in a time when the world is faced with evolving realities that is motivated by the Covid-19 pandemic. Virtual payments are becoming a global necessity, and building a robust system in this area at this time entails moving in the right direction.
Lessons From Suzhou
During the last test in Suzhou, offline stores recorded the lion share of transactions as 55% of the transactions were reported to have been carried out using this channel. The remainder of the transactions happened on JD.com, the e-commerce platform which partnered with the Suzhou government during the test.
An offline touch-to-pay option was introduced for the first time during the digital yuan test in Suzhou. This option enabled users to make payments even without internet connection by simply bringing the payer’s and receiver’s gadgets in close proximity. This feature will however not form a part of the upcoming test in Shenzhen as some technical bugs have been discovered that need to be fixed.
China is making good progress with the development of the digital yuan, and there is no secret to the capabilities of the technologies and the competition that it could introduce in the ecosystem of international trades. Perhaps in 2021 we might see other major economies making efforts to explore their own options in the achievement of national CBDCs.