On April 15, fintech circles in China buzzed with news that the government has launched the first pilot for its digital renminbi.
The establishment of a central-bank digital currency would be a milestone in digitizing money – and if a large country like China leads the way, it is a potential driver for many other countries to follow suit.
It also points to a future in which daily financial needs, from paying taxes to managing household budgets, are integrated with the currency itself.
And although these plans predate by years the Covid-19 outbreak, they give impetus to the health benefits of moving away from handling physical cash.
Screenshots suggested that Agricultural Bank of China, one of four state-owned banks and three telecom companies already chosen to conduct tests, has begun internal tests in four cities: Chengdu, Shenzhen, Suzhou and Xiong’an (the new administrative city being built outside of Beijing).
DigFin could not verify the truth of the news or the screenshots. Take this with a pinch of salt!
China has already outlined its plans for what it calls a “digital currency electronic payment” or DCEP. For details, see DigFin’s white paper, “The Libra Effect”, which looks at the development of central bank digital currencies, including China’s.
DigFin is copying from alleged Weibo account chatter that was forwarded to English-language speaking fintech executives in Hong Kong. It appears to analyze screenshots of ABC websites being used in the experiment, identifying QR codes for payments, remittances, receipts and something called “touch”.
The DCEP system is meant to rely on cellular networks to transmit value, rather than wi-fi, but also use near-field communications technology to enable offline payments, in case networks are not available (say, after an earthquake). The “touch” area may be a face-to-face transfer mechanism, implying the need for mobile phones to be proximate.
The functionality appears to also include a means of exchange between renminbi cash and digital Rmb, so that cash in a user’s bank debit card can be converted to DCEP, at one-to-one values.
There are also functions that cater to managing daily payments and bills.
According to these screenshots, among those participating in the pilot are the People’s Bank of China, the four big state-owned banks, the three state-owned telcos, and internet companies Alibaba and Tencent. This is also in keeping with the government’s stated motivation for launching a digital renminbi: as a backstop to Alibaba and Tencent servers, and to ensure interoperability among these two vital actors.