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e-CNY in First Stimulus Purpose Use

China’s central bank digital currency (CBDC), the digital yuan (e-CNY), has been used for economic stimulus purposes for the first time. Shenzhen, and Xiong’an New Area last week announced the distribution of free e-CNY red envelopes which represent monetary gifts for residents to use as part of efforts to boost local consumption.

According to China Daily, the distribution which would take the form of a raffle started on May 30. Consumers in Shenzhen have been able to log on to the app of on-demand services platform Meituan to win e-CNY that is spendable with more than 15,000 offline pilot merchants as well as on the Meituan platform. While the exact amount of money to be given away to individuals is not disclosed, total red envelopes worth CNY30 million ($4.51 million) will be given out in Shanghai, and CNY50 million in Xiong’an.

The money is meant to get locals consuming again in a bid to boost business recovery with a focus on having a multiplier effect as consumers are likely to spend more than they were gifted. That the money was given directly to consumers without any intermediary institution is also significant to the success of the effort. The direct e-CNY distribution is devoid of administration costs and guarantees flow into the economic cycle.

The Asian giant’s economy experienced a slowdown following mass Covid-19 lock-downs. In Shanghai, for example, restrictions were lifted on Wednesday, June 1 after the city’s economy – worth about $600 billion earlier – had been shut down for almost two months. The reopening sparked a rally in Asian stocks in the preceding week to ease restrictions as the continent’s economic players showed relief.

A new The Economist report finds that CBDCs are now favoured by 14% of people to signal a big push from 4% in 2021 as more than 60 central banks are now at different stages of CBDC development
with China and Sweden having started live pilots. Written based on two surveys conducted between January and February 2022 including with 150 institutional investors and corporate treasury management respondents and 3,000 consumers, about one-third of consumers expect their governments to launch a CBDC within the next three years (37%) and/or make cryptocurrency
legal tender (37%). 47% expect their country to become cashless over the next 3 to 5 years.

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