21 Apr 2020
China’s central bank has introduced a homegrown digital currency across four cities as part of a pilot program, marking a milestone on the path toward the first electronic payment system by a major central bank.
Internal tests of the digital currency are being conducted in four large cities around China—Shenzhen, Suzhou, Chengdu and Xiong’an, a satellite city of Beijing—to improve the currency’s functionality, the digital currency research institute under the People’s Bank of China confirmed Monday, in response to a request for comment.
Chinese domestic and state-run media outlets reported on the trials over the weekend. The trials followed years of research by the central bank dating back to 2014.
The new currency, which doesn’t have an official name but is known by its internal shorthand “DC/EP,” or “digital currency/electronic payment,” will share some features with cryptocurrencies including bitcoin and Facebook Inc.’s Libra, PBOC officials have said. While it won’t boast the anonymity that bitcoin and other cryptocurrencies tout, China’s central bankers have vowed to protect users’ privacy.
The intention, China’s central bankers have said, is to replace some of China’s monetary base, or cash in circulation. It won’t replace other parts of the country’s money supply, such as bank deposits and balances held by privately-run payment platforms, Yi Gang, the governor of China’s central bank, said last year.
The central bank’s research institute said Monday that the pilot is being launched on a trial basis, in part to prepare for the 2022 Winter Olympics in Beijing. The research institute added that the digital currency won’t be issued nationwide or in large quantities in the near term and said that the test run wouldn’t trigger inflation.
In Xiangcheng, a district in the eastern city of Suzhou, the government will start paying civil servants half of their transport subsidy in the digital currency next month as part of the city’s test run, according to a government worker with direct knowledge of the matter.
Government workers were told to begin installing an app on their smartphones this month into which the digital currency would be transferred, the worker said.
Civil servants were told that the new currency could be transferred into their existing bank accounts, or used directly for transactions at some designated merchants, the person said.
China is ahead of many other countries in preparing the launch of an official digital currency. In recent years, the use of traditional paper bills and cash has declined sharply, and smartphone payments have become so ubiquitous that many Chinese people, particularly younger urban dwellers, no longer carry their wallets or cash for shopping. Instead, they use Tencent Holdings Ltd. ’s WeChat Pay and Alipay, operated by Ant Financial Services Group, an affiliate of Alibaba Group Holding Ltd.
China’s central bank has said that shifting to a government-run digital payment system will help combat money laundering, gambling and terror financing. It has also hailed digital currencies as a way to improve the efficiency of transactions in its financial system.
By Jonathan Cheng, The Wall Street Journal, 20 April 2020
Read more at The Wall Street Journal
RiskScreen: Eliminating Financial Crime with Smart Technology
Count this content towards your CPD minutes, by signing up to our CPD WalletFREE CPD Wallet