Shenzhen as a pilot city for digital RMB.
Shenzhen, as a pilot city, has once again sent out 20 million yuan in digital yuan bonuses to stimulate people’s spending. Compared to the cautious attitude of other countries’ central banks, China’s central bank is eager to launch the digital RMB, but the official behavior has been mocked by the public.
According to the Financial Times, a subsidiary of China’s central bank, on January 2, according to an official release from Shenzhen, the amount of each red packet in this campaign is 200 yuan (RMB, the same below), and the number of red packets totals 100,000.
Individuals in Shenzhen can register for the lottery through the campaign reservation platform, and after winning the lottery, they can download the “Digital RMB App” and open their “Personal Digital Wallet” according to the instructions of the winning SMS. Receive a digital RMB bonus of 200 RMB. You can spend without threshold at more than 10,000 designated merchants in Shenzhen that have completed the transformation of the digital RMB system from January 7 at 08:00 to January 17 at 24:00.
It is worth noting that the Digital RMB Red Packets cannot be transferred to others or redeemed back to your bank account. Any unused red envelopes beyond the expiration date will be withdrawn.
Official media reported that this pilot is an innovative practice carried out by Shenzhen to stimulate consumption and boost domestic demand during the normalization of epidemic prevention and control, as well as a regular test during the development of the digital RMB.
The Chinese people believe that “you cannot transfer it to others or cash it back to your bank account. Any unused red packets beyond the expiration date will be withdrawn. Isn’t this still a coupon?”
Others say, “Worries about the uncertainty of one’s future income and possessions are no longer secure.”
Currently, the European Central Bank, the United States, Canada, Singapore, South Korea, Japan, Qatar and other economies with strong financial technology are also working on the research and development of digital currencies, but with a cautious attitude. China’s central bank began researching the digitization of the yuan in 2014, and in 2020, the process continues to accelerate.
Analysis by independent think tank Tianjun Politics and Economics points out that since the massive issuance of the yuan has caused inflation and discontent among the people, while corruption and money laundering have made it extremely difficult for the Beijing authorities, the immediate consequence of failure to directly abolish the yuan now in circulation would be the collapse of China’s financial system and spread to the fall of the Communist regime. Thus, replacing paper money with digital renminbi is much less risky.
At the same time, it is also a purge of the wealth of the entire population, from the common people, the middle class to the dignitaries, all without exception.
What can be determined from the official release is that 1. the digital RMB is legal tender and no unit or individual may refuse to use it; 2. it will gradually replace the base currency in circulation and is likely to speed up the process; and 3. the authorities will keep records of all transactions, including any category and amount, and containing time, place, person, transaction amount and number of items.
According to Ren Chongdao, a researcher at Tianjun Politics and Economics, the launch of the digital yuan means that officials’ large stashes of cash will be invalidated and other assets will not be able to be liquidated, and the Beijing authorities’ crackdown on underground moneychangers and cross-border gambling flows will make it difficult to transfer funds outside the country. Xi’s alternative “anti-corruption” campaign is also aimed at eliminating financial risks and avoiding a financial crisis that could affect the stability of the regime.
Indeed, the rush by Beijing authorities to launch the digital yuan has also created new risks.
On October 28, 2020, official media outlet China News reported that Mu Changchun, director of the Digital Currency Research Institute of the Central Bank of China, said, “We have found counterfeit digital yuan wallets in the market.”
According to Mu Changchun, as in the era of banknotes, it still faces the problem of anti-counterfeiting and anti-counterfeiting, and the cost of anti-counterfeiting and anti-counterfeiting in the era of banknotes is quite high, and in the era of digital RMB, it is still necessary to reduce the cost of anti-counterfeiting and anti-counterfeiting, which requires the coordinated construction of the digital RMB wallet ecology.
The Chinese people question: “Can the digital RMB be trusted? We haven’t seen any real ones yet, and the fake ones are already out?”
In addition, the Chinese public prefers existing payment methods, such as Alipay and WeChat Pay, which are widely used. Alipay and WeChat Pay currently hold more than 90% of the mobile payment market within China and have several advantages over the Chinese central bank’s digital yuan.
On Aug. 31 last year, Chinese economist Xiang Songjo wrote that “there are many misconceptions about digital currency. Some people think that issuing a digital currency will ‘overtake and rise above the competition’ and realize the internationalization of the RMB, which I think is a big misunderstanding. The early issuance of digital currency does not mean high acceptance. Trust in digital currency still comes from the credit of the sovereign state, and whether investors believe in the credit of the sovereign state depends on the soundness of the national rule of law, political and economic stability, scientific innovation, the breadth and depth of the financial market, and the level of regulation of the financial market. These are all necessary conditions, and it is not the case that internationalization can be achieved by issuing a digital currency.”
Xiang Songjo stressed again that the issuance of digital currency must ultimately be based on the trust of sovereign states.
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