China has confirmed it is conducting tests of a sovereign digital currency but has timeline for its widespread adoption.
The Middle Kingdom’s vision for the “Digital Yuan” is to allow peer-to-peer payments with an app and mechanisms like tapping two NFC-equipped phones together to conduct a transaction, without requiring an internet connection. Transactions will, like the exchange of cash, leave no record with banks or other payment services.
However all Digital Yuan transactions will be recorded by China’s central bank, an arrangement China suggests as a way to tackle corruption and allow better economic planning.
Trials are currently under way in the cities of Shenzhen, Chengdu, Suzhou, Xiong'an and “some areas where the 2022 Winter Olympics will be held”, according to State-run media. Beijing is the host of those games, but as the city lacks large mountains and reliable snow the skiing events will take place 200km away in the town of Taizicheng.
The tests cover limited applications including paying public servants their salaries, payment for public transport services and what State-run organ China Daily describes as “energy and supply chain trading”.
Quoting un-named sources, the Daily says “there are still some key problems that need to be solved by the monetary authorities, including the technical and market promotion matters, to make more people accustomed to the use of the digital currency” before the currency can be widely adopted.
There’s also the small matter of getting point-of-sale equipment built and deployed, and making sure merchants acquire it.
All of which has led State media to suggest that the previously-suggested timeline of late 2020 for a wide rollout probably isn’t realistic.
It’s also unclear how the scheme will interact with other digital payment methods like Alipay and WeChat Pay, which have a huge slice of China’s payments market.
China’s authorities know they have to ensure transaction costs for the Digital Yuan don’t exceed those of other payment platforms, or else creating demand will be hard. But of course China doesn’t always rely on market forces to achieve its goals. ®