Analysts hail Shenzhen digital yuan trial

China’s experimental US$1.5-million giveaway of digital yuan to Shenzhen residents ended on Sunday with acclaim from currency analysts.

Under the weeklong program, the People’s Bank of China gave 200 yuan (US$29.75) to each of 50,000 consumers selected in a lottery in digital “red envelopes,” echoing the country’s traditional way of gifting cash.

The online wallet was accessible via an app, without need for a bank account, with payments accepted via smartphone scans in downtown outlets in China’s fourth-biggest city, from luxury goods retailers to snack stores.

The largest such trial to date in the world’s second-largest economy had been hailed by analysts as a step forward for China as it chases what has become a Holy Grail among the world’s central banks — the first central bank digital currency.

“The event last week really means that the (digital yuan) has already moved from theoretical internal testing to real world practice,” said Wang Shibin, co-founder of cryptocurrency trading platform HKbitEX.

Earlier this month, seven central banks, including those of the United States, Britain and Japan, set out key principles for issuing digital currencies.

Raymond Yeung, ANZ’s chief China economist, said the digital yuan would have greater effect domestically as by allowing authorities to monitor currency circulation more closely, it would help prevent money laundering. It could also allow more targeted monetary policy, or, even levying negative interest rates on cash.

He said whether ordinary people would shop with digital yuan rather than mobile phone-based payment platforms like WeChat or Alipay “comes down to incentives, and which vendor gives you more motivation to use it.”

Alipay, operated by an affiliate of e-commerce giant Alibaba, and Tencent’s WeChat Pay app dominate and have made China one of the world’s most advanced payment markets.

In Shenzhen’s Luohu District, more than 3,000 shops from Dolce & Gabbana to supermarkets accepted the digital yuan last week to pay for goods in part or in full using special devices to scan QR codes embedded in a mobile app. It wasn’t immediately clear how much of the total giveaway had been spent, or where.

But some recipients of the giveaway say authorities have work to do in convincing consumers of the benefits of a central bank-backed digital yuan as most consumers have been long used to scanning phones to pay for goods with other systems.

“Alipay and WeChat Pay have been out for a long time,” said a shopper surnamed Zhong, who claimed to be an accountant. “The new digital currency is similar to those so it’s quite late to just start the trial.”

Zhong said she might consider switch to the new currency in the future, depending on how convenient and secure it felt.

“It’s especially important to offer convenience and other benefits to promote the use of digital yuan,” said G. Bin Zhao, senior economist at PwC China.

China may bundle it with subsidies, pension accounts, or state sector paychecks, he says, but “for digital yuan to be popularly accepted, banks and other institutions need to invest heavily in applications, marketing and education.”