What China’s New Digital Currency Tells Us About a Cashless Future

Cosmetics, groceries, a new phone, a year's of worth laundry detergents, citizens of the Chinese City of Suzhou entered an official lottery to win up to 200 yuan, or roughly $30 from the government in order to spend it in any way they But the money that the people won was not physical cash.

 

It was digital yuan, part of the Chinese government's ambitious plan to create one of the world state-backed digital currencies. Here's how the system works and the goals that China wants to pursure with it. In the last few weeks of 2020, the People's Bank of China rolled out a pilot program in the Eastern Chinese City of Suzhou. They had to download an app and have it on the phone.

We spoke to one women who used her 200 yuan to buy a year's worth of laundry detergent for her family. And she did that online at an online store, but she said it went very smoothly and it went just like regular digital payments do in China.

 

There are two advantages, at least, so far, that the People's Bank of China and other Chinese officials have touted for this new digital currency. One is that you don't need an internet connection to make these purchases. There are places in China where you can get good internet signals. The other advantage is for merchants. Having the People's Bank of China itself, managing this currency would cut out the middleman in a certain respect.

 

China's actually already pretty advanced in this regard in that many people hardly use cash at all in their daily lives. They mostly pay for things through Alipay, which is owned by Any Group or under Wechat Pay, which is owned by Tencent.

 

So most people, like in Beijing, I almost always pay with my phone right now with a QR code on my phone that comes up in Wechat or an Alipay that is then scanned. Our understading is that what the People's Bank of China wants to do is quite similar, except that it wouldn't happen necessarily through Alipay or through WeChat pay. It would happen through a separate app that the PBOC has created that would allow people to pay that way. Tencent and Ant declined to comment.

Chinese authorities have given their own stated reasons for why they see benefits in this digital currency to have a better sense of how people are spending their money. In a macro way, you have a sense of how money flows through the economy. On a micro scale, and this is something that many of the West would probably not be comfortable with, and many China, frankly would not be comfortable with is that it would allow authorities to be able to track precisely how you or my neighbor or the person down the street they're spending the money on. They're spending the money on buying things they shouldn't be buying, whatever, however you define that. Are they gambling with their money? Are they doing this or that with the money?

 

There are many countreis in the world, and many of them are looking into an exploring the idea of digital currencies, but there haven't been major economies like China's that have gotten to the stage of rolling out pilot programs where citizens are spending this digital currency.

 

Right now, it's rather modest than what it's trying to do, And I mean, they say it's just ro replace physical cash, but of course this could just be the first step.