China makes major push in its ambitious digital yuan project

This is a test of the digital yuan in China.

China makes major push in its ambitious digital yuan project

Hong Kong CNN

The government of China is making a major push to popularize digital yuan. This will include the payment of all public sector workers in a city in eastern China.

According to a document widely circulated on government websites, Changshu in Jiangsu will begin the new payment procedure in May. According to state media, this is the largest rollout of the currency in China. It's also called the eCNY.

Affected are employees of the government, as well as those employed by state-owned businesses and institutions, such as hospitals, schools, libraries, research centers, and media organisations in the city.

Changshu, with 1.7 million inhabitants, had already begun experimenting with digital yuan. This is a form money that only exists online, and it's managed and backed up by China's Central Bank. The digital yuan, like cryptocurrency, incorporates elements of blockchain: Each transaction is recorded in a digital ledger.

Changshu began paying transit subsidies to some government employees using digital yuan in October last year.

China is on the brink of becoming a cashless nation, but most electronic transactions are done on apps owned by private companies (Alipay or WeChat Pay), which are outside the direct jurisdiction of the government.

A yuan official would give Beijing unprecedented information on what people spend their money on, and where.

Since 2020, China has been testing the digital yuan, also known as the central bank digital currency or CBDC, in Chinese cities. This could be the first step in a global race for the development of a state-backed, digital currency.

Struggling to gain traction

Beijing has been experimenting with many marketing methods to promote the new currency.

In January of last year, the People's Bank of China released an app for Apple and Android that could be used by more than a dozen pilot cities and regions.

It also pressured companies, such as McDonald's and Nike, to let customers use the digital currency during the Beijing Winter Olympics.

Beijing and Shenzhen have given away millions in digital yuan directly to their residents, to encourage them to use this virtual currency.

The government has also requested that apps owned by private companies actively promote the digital currency. Alipay started testing digital yuan payment in 2021. Tencent (TCEHY), announced last year, that it will also support the digital yuan within its WeChat Pay app.

The currency has not been able to gain much traction.

According to the latest data from the People's Bank of China, the total amount of transactions using the currency was only 100 billion yuan (14.5 billion dollars) at the end of August last year. This is equivalent to 3.6 billion yuan on average per month, since the trial began.

After three years of testing, this is a small step forward. However, it is still far away from being able to compete with privately owned digital payment applications.

Ant Group, the company that owns Alipay revealed in 2020 filings to the stock exchanges that Alipay processed $1.6 trillion per month on average -- more than 1,000 times the monthly digital yuan transaction volume.

Analysts cited a lack in incentives and concerns over the power of the government as the reasons for their lack of enthusiasm. Alipay and WeChat Pay, the industry leaders, already have hundreds of million users familiar with their services.