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China begins digital currency trial

Yuan (AFP/Getty). Sketched by the Pan Pacific Agency.

SHANGHAI, Oct 10, 2020, Reuters. China’s central bank is issuing 10 million yuan (US$1.5 million) worth of digital currency to 50,000 randomly selected consumers in the country’s first public test of a digital yuan payment system, Bangkok Post reported.

The campaign by the People’s Bank of China (PBOC) comes as central banks worldwide race to issue digital currencies to modernise payment systems, as well as to fend off potential competition from privately issued cryptocurrencies.

Starting Friday, individuals in the southern city of Shenzhen were invited to join the program through the country’s Big Four banks. But only some will be awarded a 200-yuan “red envelope” via a lottery, according to the local government and the lenders.

The winners can use the digital currency in 3,389 retail outlets in Shenzhen including Sinopec service stations, Walmart stores, CR Vanguard malls and Shangri-La hotels.

“This is the first public test of digital yuan, and has huge significance,” wrote Dong Ximiao, chief analyst at Merchants Union Consumer Finance Co Ltd.

He suggested the PBOC expand pilot schemes to more Chinese cities and officially launch the digital currency as soon as possible to meet public needs.

The PBOC said in April it was conducting tests of a digital yuan payment system in four cities across China, including Shenzhen, and intends to pilot the system at future Winter Olympics venues.

China is seeking to win a first-mover advantage in its efforts to develop a digital currency, Japan’s top financial diplomat Kenji Okamura said on Thursday.

On Friday, a group of seven major central banks including the US Federal Reserve set out how a digital currency might look, in a bid to catch up with China’s “trailblazing” and leapfrog private projects such as Facebook’s Libra coin.

According to the local government in Shenzhen’s, the “red envelope” campaign is a normal test of digital yuan.

Anyone in Shenzhen can apply to join the lottery until Monday, while winners will be awarded the red envelope the same day after they download an app for the digital currency and register for a digital wallet.

China’s digital ambitions are not limited to the domestic market.

A commentary published by the PBOC last month said China needs to become the first nation to issue a digital currency in its push to internationalise the yuan and reduce its dependence on the global dollar payment system.

But Flex Yang, the founder and CEO of the crypto finance firm Babel Finance, said technology alone doesn’t automatically earn digital yuan global acceptance.

”It depends on whether other countries are willing to accept the digital yuan payment system,” he said. “It’s a political issue, not a technological one. We look forward to its future development as it is still in the early stage.”

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