Toward a Cashless Future First public trial brings China closer to rollout of digital currency
From Shell money more than 3,500 years ago and Knife money around 2,500 years ago, to Jiaozi, the earliest banknote in the world that was issued in the Northern Song Dynasty (960-1127) of China, currency as a measure of value and medium of exchange has existed in different forms for much of human history.
Since the beginning of the 21st century, the popularization of electronic banking and multiple mobile payment methods are pushing a transition toward a “cashless society.” China is at the forefront of the trend, with about 86 percent of payments now being made through mobile phones.
However, mobile payment alone is not enough to complete the transition. A new representation of money, the digital currency, is emerging with the need of the times, and China is taking the lead in making it a reality.
Real-world use
The digital RMB, officially known as Digital Currency Electronic Payment, is issued by the People’s Bank of China (PBOC), the country’s central bank. Its value is equivalent to paper money and coins and it is classified as M0, that is, notes and coins in circulation.
As early as 2014, the PBOC set up a special team to conduct research on key aspects of digital currency, including issuance framework, core technologies and circulation environment. The public trial is the latest step before launching the digital RMB.
“It is an important stage before the official issuance. It allows us to perform a thorough assessment of the overall risk and safety in different scenarios. To a certain extent, it is a type of stress test,” said Yang Tao, Deputy Director of the National Finance and Development Laboratory of China.
According to Yang, this pilot will allow different entities in the payment value chain as well as ordinary people and businesses to fully experience the convenience brought by the technology.
As a part of the program, 10 million yuan ($1.52 million) worth of digital currency was issued to 50,000 randomly selected residents in Luohu District, Shenzhen, Guangdong Province in south China, on October 12, each for 200 yuan ($30.4). The government distributed the money to the recipients through a designated mobile app. It marked China’s first large-scale realworld use of the digital currency.
Wu Gangyuan was one of the participants in the pilot, paying his grocery bill at a supermarket near his home with the windfall income. “It’s similar to popular mobile payment services like Wechat Pay, but has fewer operation steps and doesn’t need Internet connection,” Wu said.
Most of the 3,389 participating businesses were supermarkets and restaurants. Participants could also recharge their metro card with the money.
“All our stores conducted training for handling digital RMB transactions,” said Deng Cairong, a manager of a supermarket chain.
According to official statistics, 47,573 people made 62,788 digital RMB transactions worth 8.76 million yuan ($1.32 million) as of October 18. Some users also used it to top up their digital wallets, with a total amount of 901,000 yuan ($136,141).
“Compared with mobile payment that people are already very familiar with, the digital RMB has multiple advantages. It does not need to be tied to a bank account and could realize anonymous and offline payment,” Yin Zhichao, Dean of School of Finance of China’s Capital University of Economics and Business, told China Economic Times.
The rollout of the digital RMB is of great significance in bridging the digital divide and enabling more groups to benefit from the digital economy, according to Yin. Moreover, he said it does not need to rely on thirdparty payment institutions, which will reduce transaction costs and improve the efficiency.
Legal tender
In recent years, the value and safety of different virtual currencies such as Bitcoin have aroused heated discussion. While people appreciate this technology-driven innovation, there are also concerns about their role in financial security.
Both the digital RMB and Bitcoin use the blockchain technology. However, compared with virtual currencies that are not backed by the government, the digital RMB is a legal tender, equivalent to paper currency, and its security is guaranteed.
Yi Gang, Governor of the PBOC, said there is no pre-set technical route for the development of the digital RMB. Both the Blockchain and other technologies developed on the basis of existing electronic payment approaches can be used for the digital RMB, which would fully stimulate the enthusiasm and creativity of the market.
Another common concern is whether the digital RMB will replace third-party mobile payment services.
Mu Changchun, Director of the PBOC Digital Currency Research Institute, said as a public good, the digital RMB will enrich electronic payment methods.
“At present, third-party services such as Wechat and Alipay have become important financial infrastructures in the retail payment scenario,” Mu said, “In the era of the digital RMB, the money has a new form. At that time, people can use either their bank deposits or the digital RMB in mobile payment.”
He added that in the circulation of the digital RMB, the payment chain needs to be promoted by all related parties. It is reported that the PBOC Digital Currency Research Institute has reached strategic cooperation agreement with JD Digits, the fintech arm of e-commerce giant Jd.com, to promote the application of the digital RMB.
Further improvements
At a new product launch event on October 30, Richard Yu, CEO of Huawei’s Consumer Business Group, said the company’s Mate 40 series smartphones have encrypted storage and high-performance near-field-communication capabilities that enable device-todevice transaction functions, allowing their users to enjoy a more convenient mobile payment experience in the scenarios of using the digital RMB. In addition, Huawei also participated in the formulation of the specification for the digital RMB hardware wallet.
“We need to ensure the security of the e-wallet, prevent illegal transactions through the digital currency, and do a good job in anti-money laundering based on big data,” Yin said. He also called for more efforts to improve the payment environment and related laws.
Following Shenzhen, digital RMB trials will also be conducted in Xiongan New Area in the northern province of Hebei, Suzhou in Jiangsu Province in the east, Chengdu in Sichuan Province in the southwest and Beijing. There are reasons to believe that with the maturing of technologies and security measures, the digital RMB will play a more important role in life. CA