China's digital yuan tests leap forward in Shenzhen
Shenzhen, known for its manufacturing community and manufacturing resources, is taking the lead in testing China's digital yuan.
Last week, the city issued 50,000 randomly selected residents who applied for 10 million yuan worth of digital currency. The government distributed the money via mobile "red envelopes," a tool that digitized the custom of giving away money in red packages and was first popularized by WeChat's e-wallet.
"Red packets are a common way we've seen Chinese internet companies drive adoption, as we saw Tencent WeChat and Alibaba's Alipay in the early days of launching these products," said Flex Yang, CEO of Crypto finance firm Babel Finance, TechCrunch said.
The digital yuan is not to be confused as a form of cryptocurrency. Rather, it is issued and administered by the central bank. It serves as the legal, digital version of China's physical currency and gives Beijing a better overview of the currency in circulation. It's designed to complement, not replace, third-party payment apps like WeChat Pay and Alipay in a country where cash is dying out.
For example, in the future, the central government can give subsidies to local offices by sending digital yuan to address issues such as corruption.
Shenzhen is one of four Chinese cities that have started internal testing of the digital yuan. This was announced by the government in August without going into the details. The recent distribution to consumers is believed to be the country's first large-scale public test of the centrally issued virtual currency.
Almost 2 million people in Shenzhen have signed up for the lottery, according to a post from the local government. The winners were able to redeem the 200 yuan envelope in the official digital yuan app and spend the virtual money in over 3,000 retail stores across the city.
There was previous evidence of an incoming app. In April, Shenzhen's digital currency vehicle kicked off a wave of recruiting for technical positions such as mobile app architects and Android developers.
As a next step, Shenzhen will introduce a "fintech innovation platform" through its official digital currency institute, according to a new central government document detailing the city's five-year development efforts, including attracting further foreign investment in cutting-edge technologies. The city will also play a key role in promoting the research and development, application and international cooperation of the digital yuan.
The "fintech innovation platform" is vaguely defined in the announcement, but Babel's Yang offered its interpretation, suggesting that it "is intended to allow private companies and other institutions to participate in these real or capital market development projects that have common goals as the launch of the DCEP (Electronic Payment Electronic Payment). "
The city is well positioned to test private engagement as it is a national model for market-driven economic reform. Established in 1980 as China's first special economic zone, it is now home to technology giants like Tencent, Huawei and DJI, as well as innovation centers like HAX and Trouble Maker. President Xi Jinping will visit the city this week to commemorate the city's 40th anniversary.
While the central bank provides the logic and infrastructure for the digital yuan, commercial banks and private companies have plenty of room for innovation at the application level. Both the hailstorm platform Didi and JD's fintech arm recently unveiled steps to accelerate the real-world implementation of the digital yuan.
"If the pilot [in Shenzhen] goes well, we can assume that other cities will launch their pilot programs along with new application scenarios to accelerate the roll-out of the DCEP," noted Yang.
The story will be updated with expert commentary on October 12th.
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