China announced it will launch a second public test of its digital currency in the form of “red packets” – consumption  coupons. The new round of tests involve a wider range of consumer and application scenarios compared to the first public trial. The pilot scheme has already been successfully rolled-out across several provinces. Suzhou, in Jiangsu province, plans to issue CNY100,000 digital red packets worth CNY20 million in total, each containing CNY200, to local residents. Ongoing pilot programs have been running across five Chinese cities, including Shenzhen in Guangdong province, Suzhou in Jiangsu, Chengdu in Sichuan, and the Xiong’an New Area near Beijing. The new currency is also in trial test in areas where the 2022 Winter Olympics will be held.

The Suzhou program is unique in adding online payment in addition to various offline applications. Suzhou residents in designated parts of the city can order and pay for products on the JD.com platform without leaving their home. China’s digital economy has entered a period of rapid advancement. Research and development (R&D) and applications for a digital yuan will be conducive to improving connectivity between individuals and enterprises in the digital economy, while boosting economic growth, said an analyst. 

PBOC Governor Yi Gang said  that China will push forward the R&D of China’s sovereign digital currency in a steady manner, launch pilot tests in an orderly manner and improve the legal framework for the digital yuan. After several years of development, the technologies have become more mature by 2021, according to Pan Helin, Executive Director of the Digital Economy Research Institute at the Zhongnan University of Economics and Law. “In recent years, China’s digital industry has boomed, and new technologies such as big data, cloud computing, 5G, artificial intelligence and blockchain have been rapidly developed and widely applied in various fields of the social economy, laying a good foundation for the development and application of the digital currency,” Pan told the Global Times. Seventeen years after the second amendment of the Law on the People’s Bank of China was approved, public comments are also being taken on a new draft version that was proposed in October, which could potentially legalize the digital yuan, paving the way for its popularization in China. Once passed, the new draft would enable the PBOC to coordinate supervision over important financial institutions, financial holding companies and important financial infrastructure, as well as to increase penalties for violations.

“The new law is an attempt to guard against systemic financial risks amid the two-way opening of China’s market and the huge scale of financial products innovation,” Dong Dengxin, Director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times. “It will play a vital part in financial supervision. It will guard against forgery and money laundering, as it is highly traceable. It will also cut the cost of issuing, recycling and transporting cash,” Dong said. Guo Tianyong, head of the Chinese Banking Industry Research Center at the Central University of Finance and Economics in Beijing, told the Global Times that usage of digital yuan through online payments can achieve “point-to-point” transactions. Payments won’t have to go through WeChat or Alipay but instead through another system backed by the PBOC, and help reduce risks, said Guo.

Meanwhile, the Hong Kong Monetary Authority (HKMA) is discussing with the Digital Currency Institute of the PBOC  technical pilot testing of the digital yuan, or e-CNY, for cross-border payments. Eddie Yue, Chief Executive of the HKMA, said the monetary authority and the PBOC have been making corresponding technical preparations, but there is not yet a timetable for the launch. As the largest offshore yuan center, Hong Kong has a pool of more than CNY670 billion, although most of it is illiquid. Renminbi is already in use in Hong Kong, and the status of the e-CNY is the same as cash in circulation, said Yue. The digital currency will be an additional payment option for those who need to make cross-border purchases.