A variety of fruit at a store in Shenzhen, China. During an experiment in the city last week, goods could be purchased with the digital yuan. Photo: Asia Times.

China’s experimental $1.5 million giveaway of its pioneering digital yuan to residents of the southern city of Shenzhen was not a hit with consumers, who said they preferred existing methods of payment such as the Alipay app.

Under the week-long scheme, which ended on Sunday, the People’s Bank of China (PBOC) gave 200 yuan ($29.75) to each of 50,000 consumers selected in a lottery in digital “red envelopes,” echoing the traditional way of gifting cash in Chinese culture, Reuters reports.

The online wallet was accessible via an app that was not linked to a bank account, with payments accepted via smartphone scans in a broad range of retail outlets in downtown Shenzhen.

In the city’s Luohu district, more than 3,000 shops – from Dolce & Gabbana to supermarkets – accepted the digital yuan last week as payment for goods using special devices to scan QR codes embedded in a mobile app. 

Sceptical reactions among some Shenzhen recipients of the giveaway – long accustomed to scanning phones to pay for goods with other systems – showed the central bank and government have not yet convinced consumers of the benefits of the digital yuan.

“Alipay and WeChat Pay have been out for a long time,” said a shopper who gave only her surname, Zhong. “The new digital currency is similar to those so it’s quite late to just start the trial,” said Zhong, an accountant.

Zhong said she might consider switching to the new currency in the future, depending on how convenient and secure it proved to be.

Attracting users will largely depend on incentives to lure customers from Alipay or WeChat Pay, which are already used to buy everything from basic goods to complex financial products, say analysts.

“It’s especially important to offer convenience and other benefits to promote the use of digital yuan,” G Bin Zhao, senior economist at PwC China, told Reuters.

Beijing may bundle it with subsidies, pension accounts, or state sector paychecks, he says, but “for digital yuan to be popularly accepted, banks and other institutions need to invest heavily in applications, marketing and education.”

Another downtown Shenzhen user of the online wallet, who gave her surname as Yuan, echoed that notion, saying spending her digital currency gift was less convenient than existing options.

“I’m not planning on using it again,” said Yuan, who said she works in finance. “Unless there is another red envelope, of course.”

Meanwhile, the International Monetary Fund (IMF) said on Monday that the emergence of central bank digital currencies (CBDC) could result in foreign currencies displacing domestic money in national economies, with adoption of the technology also potentially increasing illegal capital flows in the absence of effective safeguards.

Issuing CBDCs may also enable currencies to internationalize or achieve reserve currency status, the IMF said.

By becoming the first country to issue a CBDC, China aims to reduce its dependence on the US dollar payment system.

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