China is expanding its digital yuan tests on a larger scale. The city of Chengdu has just launched the biggest tests so far in terms of digital yuan allocation. 200,000 users selected through a lottery received 40 million digital yuan (about $6 million). Previous trials in Beijing, Suzhou and Shenzhen had an average of 18 million digital yuan per test. The trials in Chengdu run until March 19 including over 11,000 business in the city as well as China’s largest online retailer, JD.com.
Other digital yuan test in Shenzhen region now also offer ‘digital transactions’ at ATMs. The feature at selected ATMs of state-owned Agricultural Bank of China allows to convert cash into digital yuan or the other way around.
China launched the Digital Currency Electronic Payment (DCEP) in April 2020. After the elementary trial’s success, China’s central bank, the People’s Bank of China (PBOC), approved further trials, aiming at having the digital yuan ready for use by the Winter Olympics in Beijing in 2022.
Digital yuan going global
Moving fast toward a fully functioning domestic digital currency, China has its eyes on the global expansion of DCEP. Recently, China’s central bank has joined the central banks of Hong Kong, the United Arab Emirates, and Thailand to assess the applicability of using digital currency for cross-border payment.
This joint project, dubbed Multiple Central Bank Digital Currency (m-CBDC) Bridge, is led by the Bank of Thailand and Hong Kong Monetary Authority (HKMA). They aim to find the potential drawbacks of unified digital cross-border payment systems and make this type of payment more efficient by using distributed ledger technology. The final objective is to build a solid system that can easily handle the global transfer of national digital currencies and manage transaction settlements.
By expanding the use of the digital yuan globally, China can assume a more influential economic and political role in the world. Given the geopolitical and trade tensions, this is closely watched from the West.
The approximately 1.8 billion people worldwide without a bank account could also benefit from an internationalisation of the digital yuan, as no account is necessary for it. According to the World Bank, 13 percent of this population group live in China.
Furthermore, the digital yuan could also play an important role in 65 countries taking part in China’s Belt and Road Initiative.
Asia’s move toward national digital currencies
The global rise of cryptocurrencies spurred many countries worldwide to take steps toward issuing their own national digital money. Accordingt to a study by the Bank for International Settlements, 80% of central banks are currently seriously considering and investigating the potential use of Central Bank Digital Currency (CBDC), with 40 percent of them developing proof of concept, and about 10% already deploying experimental projects.
In Asia, several countries are developing their respective CBDC projects to achieve higher payment efficiency and transfer flexibility, including the central banks of Thailand, South Korea, and Japan.
Furthermore, Cambodia’s national bank has recently launched its own digital payment system to increase Cambodian Riel’s presence and avoid its currency from further shrinking. Most transactions in Cambodia are made in US dollars.
Singapore’s city-state is developing a national multi-currency payment platform and preparing to launch its own central bank digital currency via Project Ubin.
Vietnam is also taking steps to make CBDC a reality and recently launched a blockchain platform dubbed akaChian.