For China watchers keen to read tea leaves, is China’s much-anticipated CBDC — the state-issued digital yuan that is already more than five years in the making — close to launch? 

On the mainland, where government initiatives and journalism output are often closely coordinated, media coverage of China’s DCEP has certainly reached a new level of frequency and intensity. 

Other signs of the DCEP getting prepped to be stage-ready abound. In Shenzhen, one of the original four cities where China’s digital currency is being pilot-tested, the e-RMB’s new digital wallets have now entered a large-scale testing phase involving major state-owned banks.  

China’s Ministry of Commerce also recently laid out a detailed plan for testing the digital currency in the nation’s most financially and politically powerful regions, including Shanghai and the three neighboring provinces of Jiangsu, Zhejiang and Anhui, the “economic circle” around Beijing, and the Hong Kong-Macau-Guangdong Greater Bay Area.  

Aside from allowing the Chinese government greater controls over its money supply and a way to monitor financial transactions, the DCEP — which stands for Digital Currency, Electronic Payment — can also be used as a stimulus-distribution tool in replacing cash, economists and former officials say. 

See related article: China’s new DCEP could fast-forward the nation into a cashless society

DCEP as a stimulus of “dual circulation”

China, in many ways, is already evolving into a cashless society. Mobile payment platforms like Alipay WeChat Pay are ubiquitous on consumer mobile phones and widely accepted by merchants across the country.

Once DCEP is rolled out, some believe, the digital currency could well replace all of China’s cash in circulation.

“Otherwise, its market competitiveness could be problematic,” said Wang Yongli, the former vice president of Bank of China, in a recent WeChat post

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China’s DCEP could eventually replace all money in circulation. Photo: Joshua J. Cotten 

Wang and others regard DCEP as a significant technological breakthrough and policy tool for China, as it could promote the reform of China’s economy and monetary policies. As it is not a cryptocurrency, the state-issued DCEP could prevent the overissuance of money and help China’s central bank maintain financial stability. The government-backed digital currency will also likely facilitate China’s trade and other cross-border transactions, especially with neighboring countries, and perhaps one day help strengthen the RMB against the U.S. dollar.

Other economists in China echoed sentiments similar to Wang’s in their positive opinions towards DCEP, pointing out that the new People’s Bank of China (PBOC)-backed digital currency project could also accelerate a “dual circulation” approach to China’s economic development. 

“Dual circulation” and “domestic circulation,” phrases that recently have been trending in Chinese media, refer to the new economic strategy proposed by President Xi Jinping that focuses on the domestic and oversea markets equally — and perhaps even lean toward greater attention and resources to the domestic market and domestic demand. 

DCEP will support the new economic strategy as it facilitates “the creation of a yuan-denominated ‘electronic currency zone’ that consequently will reduce external policy interference and maintain policy independence.” Also, DCEP’s traceability will allow PBOC to collect more information on money flows and allow the central bank to make better monetary policies.

See related article: China hopes its new digital currency will internationalize the RMB. When might that day come?

Not everyone agrees that DCEP will be able to spur “dual circulation.”

The term “dual circulation” or “domestic circulation” is just “old wine with new bottles,” Zhiguo He, a professor of finance at the University of Chicago Booth School of Business, told Forkast.News

China’s core issue is still the long-lasting problem of how to stimulate domestic demand, He said. “Stimulating domestic demand needs more information, not only a simple new payment or a new technology, it’s more like an economic question, not a technical problem.” 

He believes that DCEP still has a long way to go to build a large enough information database to monitor the flow of capital the way that Alipay and WeChat Pay have up to now. In the short term, He believes DCEP will be more important in attracting investments rather than stimulating domestic demand. 

DCEP is now in large-scale testing phase

Aside from intensifying media coverage and public conversations within China, DCEP’s inner workings also appear to be having breakthroughs. 

The “Digital RMB Wallets App” is now being tested in earnest at a number of large commercial banks in Shenzhen, including ICBC (Industrial and Commercial Bank of China), Agricultural Bank of China, Bank of China and China Commercial Bank, employees from several of the banks told Jingji21, a well-regarded financial media publication in China. Forkast.News also confirmed the same with sources familiar with this issue. 

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China’s DCEP may have limited offline use cases, and currently few stores accept it. Photo: Li Lin

The functions of the DCEP app are similar to that of other digital wallets. The e-RMB wallets are connected with a user’s traditional bank account, and users are able to transfer RMB to digital RMB as well as deposit and withdraw money. Users can also conduct financial transactions through QR code and phone numbers directly, without having to use the internet.

In practice, there are currently limited offline use cases for DCEP and the e-RMB wallet. Unlike Alipay or WeChat Pay, which are accepted all over China, few offline shops or merchants are able to accept DCEP for the testing of digital RMB wallets. 

However, this could change rapidly as the DCEP testing broadens and the digital currency enters into wider circulation. One recent shopper in Shenzhen told Forkast.News about being able to pay for a purchase at a small convenience store using DCEP by scanning a QR code. 

According to another source who asked not to be identified, the PBOC still has some internal disagreements over the DCEP to resolve, and it is not clear how that would affect the digital currency’s rollout. Every employee on the PBOC’s DCEP project staff has signed a non-disclosure agreement and is forbidden to discuss the project’s inner workings. Local media has also pointed out that each DCEP app now displays a digital watermark identification code, to discourage information leaks. 

In the meanwhile, more and more clues illustrate what DCEP’s real-world use cases might be in China’s economy, including ride-sharing, takeaway food and online content.

Didi Chuxing (Didi), the Chinese equivalent of Uber, recently announced that it had signed a strategic partnership with Digital Currency Research Institution, a unit of PBOC, to accelerate the adoption of DCEP. 

Didi is China’s biggest ride-hailing mobile service operator, with 550 million users and over 31 million drivers. Didi’s app currently allows users to pay through credit cards or the two major digital payment platforms, Alipay and WeChat pay. It’s likely that Didi users in the near future will be able to pay their ride-share bills through a DCEP wallet. 

Meituan, China’s food delivery giant and the parent company of bicycle-sharing company Mobike, have also been participating in discussions over how to get involved in the development and use of the DCEP, according to Caixin, a financial news publication in China. Another company having such talks is Bilibili, China’s YouTube-equivalent. 

Despite the ebullient recent coverage of DCEP in Chinese local media, the official public words of PBOC — perhaps not too different from the uniformly buttoned-up central bankers elsewhere — remain reserved.  

In a recent video conference, the PBOC said simply that the initial testing and trials of the DCEP in the first half of 2020 have gone smoothly.

Without specifying a date or timetable for an official launch, the PBOC said: “Research and development of e-RMB will be actively moving forward in the second half-year of 2020.”