A city-wide cash lottery in China’s southern metropolis of Shenzhen brought out almost two million residents earlier this month – albeit virtually – when there was a lemming-like rush to sign up for a mobile phone-based cash handout.
Under the scheme, 50,000 of them reputedly received no less than 200 yuan (US$30) each, in the form of e-renminbi rather than paper money. The cash giveaway was part of celebrations marking the 40th anniversary of the city as a testbed for China’s economic reforms.
Recipients of the 10 million yuan “red packet rebate” from Shenzhen’s government could spend the virtual money at more than 3,300 designated retailers across the city.
They were spared the hassle of creating bank accounts and other verification procedures, all required by existing mobile payment services like WeChat Pay and AliPay, according to the Shenzhen Special Zone Daily.
To use the cash, only a “digital renminbi” smartphone app developed by the People’s Bank of China (PBoC), the nation’s central bank, would be needed.
This would act as an electronic wallet that mainly relies on the widely adopted near-field communication technology, not necessarily cellular networks, to transfer payment data in small retail applications.
Overall, about 8.8 million yuan was spent in more than 62,000 transactions during the week-long trial in Shenzhen, and unused money stored in the PBoC app was immediately “erased” on the final day.
This is believed to be the first large-scale public trial of the beta digital redback, officially named Digital Currency Electronic Payment, after PBoC technicians tested the reliability and traceability of a backbone e-RMB system, which has been in the making since 2014.
Initial feedback from consumers was that there was no difference between paying the e-RMB and using WeChat Pay or AliPay, but unlike mobile payment services from Tencent and Alibaba, there are no handling charges for retailers for payments in the e-RMB, a big incentive for businesses to ditch third-party platforms to transition to the PBoC’s digital currency.
Bi Xiaohu, a deputy director of the Zhejiang University’s Center for Fintech and Internet Finance Studies, said issuing monetary gifts like red packets in the form of e-RMB could be the best way to foster wider, quicker adoption of the digital sovereign currency.
China could be the first major economy to roll out a fully digitalized platform of its legal tender, and the recent Shenzhen soft launch heralded tests in other pilot cities including Suzhou, Chengdu and Xiong’an.
The trials will culminate in the 2022 Beijing Winter Olympics, where, according to organizers and the Chinese central bank, the games would be the ideal occasion for Beijing to wheel out its nationwide e-RMB program.
All Chinese and foreign athletes, coaches, journalists and visitors would be able to use the e-RMB in and around the capital. It is rumored that 2022 will see the beginning of the PBoC’s plan to print less money and cut its staff for physical currency production at its minting and printing facilities.
PBoC Governor Yi Gang was quoted by Xinhua as saying that the heady start of the e-RMB drive would lend new impetus to the globalization of the Chinese currency, in particular, for transactions involving Chinese and foreign partners who are from the developing world, as cross-boundary payments would be substantially streamlined by the e-RMB.
Yi added that the whole range of government regulation, privacy and data security challenges and concerns could be ironed out during phased trials in Shenzhen and a few other cities, before a much wider take-up across the nation of 1.4 billion people.
He said potential problems in the e-RMB would justify the central bank’s oversight role.
Xinhua also revealed that during the Shenzhen e-RMB lottery, PBoC technicians were on deck in case of system malfunctions but all metrics were up to standard and that ample system redundancy meant it could process prodigious amounts of transactions in realtime without a hitch.
David Lee, a professor of fintech and blockchain with the Singapore University of Social Sciences, told Lianhe Zaobao that e-RMB could share the same unspent transaction output technology with other cryptocurrencies and that there would always be a unique, traceable “fingerprint” for each and every transaction.
“China’s e-RMB does not require a user to have a bank account but all transactions can be tracked and monitored by the PBoC,” Lee said.
“The motive behind Beijing’s drive to stream ahead with its e-currency can be the aim to help the RMB skip the US dollar-dominated international banking and settlement regime and make it untrammeled by Western interference in international payments.
“Given time, the e-RMB may even unravel the hegemony of the greenback.”
He had gleaned from discussions with PBoC officials that almost all domestic commercial banks in China had hooked their systems with the PBoC’s central processing platform.
Judging from the quick application of related technologies and the interconnectedness of the Chinese banking system, the e-RMB could make its nationwide debut way ahead of the 2022 Winter Olympics, he said.
Mu Changchun, head of the PBoC’s digital currency research, told a financial forum in Shanghai last week that the Chinese central bank issuing e-RMB was also a strategy to stave off the erosion of China’s currency sovereignty rights by cryptocurrencies and global stablecoins, according to Xinhua.
The PBoC also published a draft law last week that would, if passed and promulgated by the Chinese legislature, give the e-RMB the same legal tender status as paper money, meaning no businesses or individuals should boycott or reject payments in e-RMB.