China set to be first in digital currency worldwide, starts major trial next week

*e-RMB reportedly adopted into the monetary systems of several cities

“A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level.”

China will begin trial of payments in its new digital currency in four major cities from next week, according to domestic media.

In recent months, China’s central bank has stepped up its development of the e-RMB, which is set to be the first digital currency operated by a major economy.

It has reportedly begun trials in several cities, including Shenzhen, Suzhou, Chengdu, as well as a new area south of Beijing, Xiong’an, and areas that will host some of the events for the 2022 Beijing Winter Olympics.

State-media outlet China Daily said it had been formally adopted into the cities’ monetary systems, with some government employees and public servants to receive their salaries in the digital currency from May.

Sina News said the currency would be used to subsidise transport in Suzhou, but in Xiong’an the trial primarily focused on food and retail.

A screenshot purported to be of the app required to store and use the digital currency has been circulating since mid-April.

Some reports also claim businesses including McDonald’s and Starbucks have agreed to be part of the trial, however in a statement Starbucks told the Guardian it was not a participant. McDonald’s been contacted for comment.

Digital payment platforms are already widespread in China, namely Alipay, owned by Alibaba’s Ant Financial, and WeChat Pay, owned by Tencent, but they do not replace existing currency.

Xu Yuan, associate professor at Peking University’s national development research institute, told broadcaster CCTV that because cash transactions were offline and transaction data from existing payment platforms was scattered, the central bank was unable to monitor cash flow in real time.

“Although there is little change from the perspective of user use, from the perspective of central bank supervision, future forms of finance, payment, business and social governance etc, this is the biggest thing ever.”

On 17 April, the digital currency research institute at the People’s Bank of China, which is developing the system, said the research and development of a digital renminbi was “advancing steadily” and top-level design, functional research and development, and debugging had largely been completed, according to a CCTV report.

Progress on the digital currency was reportedly spurred on by Facebook’s announcement in June it intended to launch one itself.

The sovereign digital currency, which will be pegged to the national currency, has been under development for some years but in August the bank said it was “almost ready”. However, the following month, the bank’s governor, Yi Gang, said there was no timetable for release.

“A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level,” last week’s China Daily report said.

“It may also facilitate integration into globally traded currency markets with a reduced risk of politically inspired disruption.”

A decline in cash usage is expected to continue amid the growing popularity of digital payment platforms and as people avoid physical contact during the coronavirus pandemic.