Moving closer than ever to nationwide launch, China’s DCEP e-RMB will soon circulate in the heartland city of Suzhou in the biggest test yet of the nation’s new central bank digital currency (CBDC).
About 100,000 residents of Suzhou, a manufacturing hub in eastern China, will receive free digital red packets containing a collective 20 million digital yuan — or about US$3 million — starting tomorrow. China’s latest digital currency giveaway, the largest to date, is scheduled to happen the day before the nation’s “double twelve” festival of shopping this Saturday, Dec.12.
Aside from designated brick-and-mortar retail stores and restaurants, Suzhou residents will also be allowed to spend their DCEP cash at online stores in JD.com, the first time that the digital yuan will be available for online shopping.
A select group of users will also be able to experiment with the CBDC’s offline wallet function — which will allow users to make a direct payment without having to go through the internet, according to People’s Daily.
Suzhou will be the second city in China to test out the new digital yuan on a large scale with ordinary people, following a test in October involving 50,000 users in Shenzhen. Aside from the Suzhou DCEP test being twice as large, the location’s symbolism also stands out.
Unlike the high-tech hub of Shenzhen, which became a city only in 1979 and is full of young professionals, Suzhou is among the cultural centers of China, famous for its 2,500-year history and classical gardens.
The new digital yuan, officially known as DCEP, or “Digital Currency Electronic Payment,” is the People’s Bank of China’s ambitious CBDC project, aimed at creating a new digital form of the Chinese money supply — which experts say could make the RMB a stronger competitor against the U.S. dollar on the global stage.
With the DCEP soon to enter China’s cultural heart, it might not be long before China turns outward and makes its CBDC central to its trade and geopolitical strategies.
“When ready, there’s no doubt that China will introduce CBDC to the RCEP (Regional Comprehensive Economic Partnership) and the Belt and Road countries, with the ultimate goal to make the RMB an alternative to the almighty U.S. dollar,” said Stanley Chao, managing director of All In Consulting, a culture change consulting firm based in Los Angeles. “In short, the CBDC is front and center in this new cold war, and reducing its [reliance] on the U.S.”
DCEP digital yuan as part of China’s new “Silk Road”
In November, Chinese President Xi Jinping announced that Beijing would further promote its “digital Silk Road,” part of Chinese ambitious Belt and Road Initiative aimed at expanding Chinese trade and economic influence to Asian, European and African countries. Compared to other large-scale traditional infrastructure construction projects, the digital Silk Road would focus on playing a similar role for China to develop its leadership and global influence in emerging technology, like blockchain, 5G and cloud computing.
Aside from reducing China’s own reliance on the U.S. dollar, the DCEP digital yuan could see China’s trading partners using e-RMB as their future currency of settlement rather than the U.S. dollar.
China’s new CBDC may come even sooner to the nation’s own backyard. The Hong Kong Monetary Authority recently began discussions with the Digital Currency Institute of the People’s Bank of China on pilot-testing the DCEP digital yuan for making cross-border payments between the mainland and its territory. Hong Kong has its own currency, the Hong Kong dollar — has been pegged to the U.S. dollar since 1983.
“The writing is on the wall,” Chao said. “China and the U.S. are heading towards bifurcation, and China doesn’t want any reliance on the U.S. from an economic, finance, high-tech and geopolitical standpoint.”
Multiple sources told Forkast.News that the Suzhou test would include trialling the digital yuan’s offline payment and contactless payment function based on NFC (“Near Field Communication”) — a contactless communication technology based on radio frequency. In preparation, stores in the Xiangcheng district of Suzhou are now installing NFC-based point-of-sales (POS) terminals, according to local media.
Testing the offline payment function of e-RMB wallet is important to realizing China’s globalization ambitions, said Nir Kshetri, a professor in the Department of Management at the University of North Carolina-Greensboro and author of the book, “Blockchain and Supply Chain Management.”
“China also hopes that subsequently the cryptocurrency will be made available in foreign countries. Many developing countries have lower proportions of population connected to the internet,” Kshetri said. “If CBDC is to be adopted by these populations, the NFC trial holds special significance.”
Since China began planning and building its DCEP digital yuan six years ago, it has already gone through pilot tests involving four large state-owned commercial banks — ICBC (Industrial and Commercial Bank of China), Agricultural Bank of China, Bank of China, and China Commercial Bank.
Shenzhen’s DCEP testing in October brought the CBDC for the first time, en masse, to ordinary people — which many China experts note may be part of the final push to troubleshoot as well as create favorable publicity before the digital currency’s official launch.
Suzhou announced today that it would use a lottery system similar to the one in Shenzhen to pick the lucky digital yuan winners. The giveaway also likely will underscore the CBDC’s nature as programmable money with government strings attached.
In Shenzhen, where over 1.9 million people who learned about the DCEP digital yuan giveaway registered for the lottery, the 50,000 winners had only seven days to use it or lose it. Though the digital money was legal tender, the holders were not allowed to put their CBDC in a bank, regift it to another person, or stash it under the mattress longer than a week, under the rules set by and programmed into the digital currency by China’s central bank.
See related article: China pushes 50,000 people to spend DCEP right away, in biggest test yet of new digital currency
The CBDC money used in Suzhou’s testing will be good for 15 days. If the digital yuan isn’t spent by then, the e-money will expire, just as some did at the conclusion of Shenzhen’s test.
Why is the e-RMB testing taking place in Suzhou?
Located in Jiangsu Province in eastern China, modern-day Suzhou may seem to be in the shadow of glamorous Shenzhen — a high-tech hub that is also known as the Chinese Silicon Valley. But aside from Suzhou’s cultural symbolism, the ancient city is also appropriate and practical for this round of DCEP digital yuan testing, experts say. Suzhou’s diverse manufacturing base includes the production of steel and textiles. The area is also home to a growing number of technology start-ups as well as large software companies.
The tech-savvy workers in the Yangtze River Delta where Suzhou is located are also already accustomed to using mobile payment. According to the 2019 China Mobile Payment Development Report published by Ant Financial Group and China’s State Information Center, Shanghai and Hangzhou, two cities near Suzhou, placed first and second in a national mobile payment index, which represents the popularity of mobile payments within a population. Suzhou is ranked 5th and 12th nationally, in terms of the mobile payment infrastructure level and consumer willingness to use mobile payments for online and offline purchases.
“The eastern cities are more affluent, educated, tech-savvy and accustomed to multi-tasking with their smartphones,” Chao said. “A rollout in this region will almost insure a quick adoption rate, less technical mishaps, and an abundance of nearby companies in the banking and high-tech sectors that can quickly put out any fires.”
Part of the Yangtze River Delta Economic Zone, Suzhou also has a growing market for foreign investment.
“Shouzou’s geographical positioning is excellent; it is also a significant market for trade and commerce close to Shanghai, country’s economic and financial capital,” said Marie Tatibouet, the chief marketing officer at the cryptocurrency exchange Gate.io, who has lived and worked in China for over six years. “The city’s economic output is expected to reach 2 trillion yuan in 2020…..Overall, Suzhou has the potential to be a benchmark for technological innovation of this kind.”
