By Jonathan Cheng
BEIJING--The People's Bank of China on Sunday concluded its
second digital-currency pilot program, as the central bank moves
closer to a formal rollout that would make China the first major
world economy to introduce such a system.
This month, authorities in the eastern Chinese city of Suzhou
handed out 20 million digital yuan, equivalent to $3.1 million, to
local residents via a lottery. Each of the 100,000 winners received
200 yuan in the new digital currency, which could be spent on
online or offline purchases.
The Suzhou pilot included twice as many residents and three
times as many merchants as one conducted in October in the southern
Chinese city of Shenzhen, the first such trial of the
government-backed digital currency.
The trial in Suzhou also expanded the scope of the pilot program
by testing the digital yuan on online stores and by introducing an
electronic-payment method that doesn't require an internet
connection.
Wang Ju, a 39-year-old Suzhou resident who was selected to
participate in the pilot, was impressed to find a pastel-colored
replica of a yuan bank note featuring state founder Mao Zedong in
her digital-wallet app after following the instructions.
"It's amazing," said Ms. Wang, who spent all of her allotted
currency buying enough laundry detergent to keep her family's
clothes clean for a whole year. Ms. Wang chose to spend the money
at JD.com Inc.'s online shopping platform, which was offering big
discounts during its annual "Double Twelve" shopping festival that
began on December 12.
Chinese authorities also teamed up with other technology giants,
including Meituan and Didi Chuxing Technology Co., to test the use
of digital yuan for services such as food delivery and ride hailing
respectively.
To buy all that detergent, Ms. Wang had to top up with five yuan
from her account at Industrial & Commercial Bank of China Ltd.,
since it exceeded the 200 yuan she received from the central bank.
"It went through smoothly, like other online payments we did," she
said.
In the first 24 hours of the Suzhou trial, JD.com recorded
nearly 20,000 orders paid in the digital yuan, the company said
this month.
Besides testing payment on online stores, Suzhou also
experimented with the digital currency's offline-payment function,
a feature touted by officials to differentiate the new platform
from the electronic payment services already ubiquitous in China, a
country where payments are already increasingly cashless.
Unlike payments made through Ant Group's Alipay and Tencent
Holdings Ltd.'s WeChat Pay, the central bank's offline-payment
feature doesn't require an internet connection, which could
facilitate payments in areas with poor cellular service, officials
said. A brief tap of devices between consumer and vendor can
process the transaction.
Perhaps even more enticing for many merchants is that the new
digital currency offered by the central bank doesn't involve
transaction fees, unlike Alipay, WeChat Pay and Chinese commercial
banks.
One Suzhou merchant who participated in the pilot program
welcomed both functions. Located on the ground floor of a shopping
mall, the nut store often encountered problems with poor cellphone
signals when consumers used WeChat Pay or Alipay.
After the nut vendor was chosen to take part in the Suzhou
trial, China Construction Bank Corp., the country's No. 2 lender by
assets, which also assisted the government in experimenting with
the new currency, gave the store a domestically-produced smartphone
that enables offline payments.
"We just needed a few touches of two cellphones to make the
payment go through. It happened in the blink of an eye," said the
store's manager, Mr. Ma, who declined to give his full name.
The lack of processing fees was another inducement, he said,
saving him the three or four yuan for every 1,000 yuan processed
that banks and payment firms generally charge. "To be frank, I
prefer the digital currency which is backed by the government and
charges no payment fee," Mr. Ma said. "It saves a lot of
money."
China's central bank said it began work on its digital
currency-- known as "digital currency/electronic payment," or
DC/EP--in 2014. It has said that the new yuan is a digital
extension of physical fiat money endorsed by the government,
describing the new currency's purpose as being to replace some of
China's monetary base--cash in circulation.
Similar to China's existing commercial digital-payment
platforms, consumers must first download a digital wallet onto
their smartphones, where they can store money and generate a QR
code that is then scanned for payment during each transaction,
according to the Suzhou and Shenzhen trials.
For the central bank, part of the appeal of the new digital
currency is to create a public alternative to Alibaba and Tencent's
payments duopoly, and to gain more access to transaction data, says
Martin Chorzempa, a research fellow at the Washington-based
Peterson Institute for International Economics.
"I don't think it's about seeing who's buying diapers or
cigarettes today," he said. "It's about having more of a real-time
understanding of how money is moving in the economy for more of a
macro targeting procedure."
Once it is in widespread use, the digital yuan could also give
Chinese regulators more information on money flows, they have said,
helping authorities track money laundering and terrorist
financing.
Analysts have separately predicted the new currency could allow
the central bank to put negative interest rates on cash in extreme
economic circumstances, to encourage consumers to spend.
Though it has conducted several rounds of trials, both in public
and in private, Chinese government officials haven't offered a
concrete timetable for a full rollout. Chinese central bank Gov. Yi
Gang has said only that more rules and regulations are needed.
Grace Zhu and Stella Yifan Xie contributed to this article.
Write to Jonathan Cheng at jonathan.cheng@wsj.com
(END) Dow Jones Newswires
December 27, 2020 06:15 ET (11:15 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.