SHANGHAI: A digital currency shake-up will begin in China tomorrow when a secret plan to win over consumers comes to fruition.
Few people are paying attention, but six state banks in Shanghai are subtly promoting one particular currency, ahead of a major shopping festival on May 5.
It’s a move that could provide an alternative to payment giants Alipay and WeChat Pay, and give purchasers not just a choice – but potentially even free cash.
The currency in question is called the digital yuan. If you haven’t heard of it, or if you find the concept confusing, then you should read on.
What is the digital yuan?
When Neil Armstrong took those giant leaps for mankind in 1969, America claimed it’d won the race of the century.
Beating Russia to the surface of the moon was indeed a historic achievement – and it was celebrated accordingly.
But fast forward five decades, and the race of the 21st century may have just been won without any such fanfare.
By creating its own digital currency, China boldly staked its flag where no major economy has gone before, and in doing so has left the likes of the United States scrambling its own moon mission from the Earth below.
So has the Asian superpower propelled itself into a new era of global economic dominance? Or has it launched a rocket that will never land?
Why a digital yuan?
China has been working to develop the digital yuan, a so-called central bank digital currency (CBDC), since 2014.
It is essentially a way for the country’s central bank to digitalize some of the bank notes and coins in circulation.
“The use of cash is decreasing. Eventually cash will be replaced by something in digital format. That is one of the big drivers behind this,” Yan Xiao, project lead for digital trade at the World Economic Forum, told CNBC.
Unlike electronic transactions today, the digital yuan is designed to move from one entity to another instantaneously, removing a way banks and financial apps profit off fees and brief built-in delays in such hand-offs. The only necessary middleman is the central bank.
“In order to protect our currency sovereignty and legal currency status, we have to plan ahead,” said Mu Changchun, who is shepherding the project at the People’s Bank of China.
Asked during a recent Senate appearance whether the dollar could be digitised to help the U.S. defend its supremacy, the Fed’s Mr. Powell said researching that question is a “very high-priority project.”
“We don’t need to be the first,” he said. “We need to get it right.”
China’s ‘quiet plan’ for May 5
In the lead-up to the shopping festival in China on May 5, banks are trying to convince merchant and retail clients to download digital wallets so transactions can be made in digital yuan, instead of through commercial payment platforms.
“People will realise that digital yuan payment is so convenient that I don’t have to rely on Alipay or WeChat Pay anymore,” a bank official involved in the trial told Reuters.
It appears to be a push to dilute the dominance of Alipay and WeChat Pay and coincides with Beijing’s efforts to clamp down on anticompetitive behaviour in the internet sector.
‘Free cash’ incentives
The digital wallets used to transact the Digital Yuan will be compatible with popular apps including Meituan, JD.com, and Didi but cannot be linked to WeChat or Alipay.
According to Reuters, bankers have said the People’s Bank of China will likely give “red envelopes” of free digital cash or discounts to Shanghai citizens around the upcoming shopping festival, which will aim to fuel economic recovery from the COVID-19 pandemic.
It’s a bold move that’s largely gone under the radar and could potentially help China win the space race of the 21st century.