China’s digital yuan speeds up: expanding pilot areas and exploring cross-border payments

After several years of research and design, China’s digital yuan (also known as digital RMB or digital Renminbi) officially moved from concept to pilot in 2020.

From Shenzhen, Suzhou, Xiong’an New District, and Chengdu to take the lead in internal closed tests, to pilot digital yuan red envelopes in Shenzhen, Suzhou and Beijing, the digital yuan pilots have moved from closed internal testing to “semi-open” pilots.

As Beijing, Shanghai, Changsha and other places have joined the pilot program, the pilot scope of digital yuan is expanding and gradually flying into “ordinary people’s homes”.

Expansion of pilot areas: Beijing, Shanghai, Changsha, etc. joined

The Digital yuan is a digital legal currency issued by the People’s Bank of China. It is operated by designated operating agencies and exchanged to the public. Based on the broad account system, it supports the loose coupling function of bank accounts. It is equivalent to banknotes and coins and has value characteristics. And it supports legal compensation and controllable anonymity.

On April 19, 2020, according to the People’s Bank of China’s Digital Currency Research Institute, the digital yuan will be tested internally in Shenzhen, Suzhou, Xiong’an New Area, Chengdu and the future Winter Olympics.

In the second half of 2020, the voice of expanding the scope of pilot areas gradually increased, among which, Beijing, Shanghai and Changsha respectively exposed the pilot situation at the end of 2020 and the beginning of 2021.

Beijing’s trial of digital yuan centers on the 2022 Winter Olympics. On January 23, the work report of the Beijing municipal government made it clear that the pilot application of digital yuan will be promoted this year.

On February 6, the official website of the Beijing Municipal Financial Supervision Administration announced that the city has launched a digital renminbi pilot program, “Digital Wangfujing Snow and Ice Shopping Festival”, focusing on the whole consumption scenario of the Winter Olympics. 50,000 digital renminbi red envelopes worth 200 yuan were distributed.

Shanghai, on the other hand, proposed to “actively strive for the pilot application of digital RMB” for the first time in the “Proposal of the CPC Shanghai Municipal Committee on the Formulation of the Fourteenth Five-Year Plan for the National Economic and Social Development of Shanghai and the Vision Goals for the Year 2035” released on December 10.

A doctor at the staff canteen of Tongren Hospital affiliated to Shanghai Jiao Tong University School of Medicine in Shanghai, capital of China, Jan 5, 2021, made payments with a digital Renminbi (RMB) card “hard wallet”.

Changsha is also confirmed as a pilot city. On February 6, the Hunan Daily reported that the relevant person in charge of the Changsha City Finance Office stated that since Changsha was officially approved as a digital RMB pilot city in November 2020, the Changsha Municipal People’s Government and the People’s Bank of Changsha Central Branch have organized the Industrial and Commercial Bank of China, Agricultural Bank of China, and Six pilot banking institutions including Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China, and China Mobile Jinke have carried out digital RMB trials in various fields involving digital payments.

Chengdu’s digital yuan red envelope pilot is also in the process of planning. At present, some banks have started to sign up for the pilot test, and if you sign up successfully, you will have the chance to get a 128 yuan or 188 yuan red envelope.

In addition, Hainan, Guangzhou and other places have also proposed to promote or strive for the digital yuan pilot.

More and more pilot scenarios and continuous innovation in applications

Previously, the test content of the four pilot cities mainly focused on retail, transportation card recharge, catering and other small, retail, high-frequency business scenarios.

According to the information so far, among the first four pilot cities, Xiong’an New Area and Chengdu are relatively “closed” compared with Shenzhen and Suzhou.

In the Xiong’an New Area, Hebei Province, a pilot promotion conference on the legal digital yuan (DCEP) was held on April 22, 2020. Digital currency research and development institutions, pilot businesses were invited to attend. On Sept 27, Xiong’an Customs, a subsidiary of Shijiazhuang Customs, completed the first payment of risk deposit in the form of digital currency.

A Chengdu-based banker previously revealed that Chengdu has implemented an invitation system for whitelist members to download the Panda Wallet App, which can be used in offline stores such as Hongqi Supermarket. According to him, At present, Chengdu has launched several rounds of recharging calls – you can charge 20 yuan for a call with 0.01 yuan of digital yuan.

The trials in Shenzhen and Suzhou are more “semi-open”.

On October 11, 2020, Shenzhen officially launched a digital yuan red envelope pilot project, with 50,000 red envelopes available for consumers to spend offline at more than 3,000 merchants in Luohu District. Only three months later, Shenzhen again handed out 20 million yuan in digital yuan red envelopes in Futian District on January 1, 2021. On January 20th, Shenzhen opened “Longhua Digital RMB Spring Festival Red Envelopes” activity, and distributed a total of 100,000 digital yuan red envelopes worth 20 million yuan to people in Longhua District who purchased social insurance and stayed in Shenzhen during the Spring Festival.

Suzhou’s digital yuan red envelopes were unveiled on December 11, 2020, offering 20 million yuan to the citizens of Suzhou. For the first time, the offline “touch” payment function and online payment function of e-commerce were introduced. Some citizens also participated in experiencing the offline wallet function. Prior to this, Suzhou has piloted the digital yuan in application scenarios such as smart parking, traffic subsidy issuance, smart business circle construction and tax payment.

On February 5th, Suzhou launched the “Digital Yuan Suzhou Spring Festival Special Event on JD”, handing out another 30 million digital yuan Suzhou Spring Festival red envelopes, each with the amount of 200 yuan, a total of 150,000 envelopes. The test in Suzhou was funded entirely by JD Group.

Corporate wallets are also being piloted

It is worth noting that banks are also piloting digital yuan public wallets, which means that the future scenario may be expanded from small, retail and high-frequency payments to large inter-industry payments.

Of the 15 businesses that participated in the trial, five were for public wallets and four were for personal wallets. One restaurant manager who participated in the trial said he had downloaded both types of wallets.

A banking source in Chengdu revealed that enterprises in Chengdu are signing agreements with banks to open digital yuan public wallets, including construction, technology, commerce and trade, labor service companies and other industries. Another company employee in Shanghai said his company has also signed an agreement with a state-owned bank to open a digital yuan public wallet.

Shenzhen Futian District budget units have opened 100% of their digital RMB wallets for public use, according to China Securities Journal.

Cross-border payments via digital yuan are upcoming

Hebei’s Xiong’an New Area, Hainan, Beijing, Hong Kong and Chongqing have mentioned exploring cross-border digital yuan payments.

On December 4 last year, according to the official website of the Hong Kong Monetary Authority, Hong Kong Monetary Authority Chief Executive Eddie Yue mentioned in an article titled “New Trends in Fintech-Cross-border Payment” that the Hong Kong Monetary Authority is working with the Chinese Central Bank’s Digital Currency Research Institute on the technical tests of using digital yuan for cross-border payment and making corresponding technical preparations.

Shen Danyang, vice governor of Hainan Province, also mentioned the application of digital yuan in cross-border investment and financing and penetrating supervision at the “2020 Golden Bull Asset Management Forum” on August 22 last year.

On January 16, SWIFT, which is responsible for the transmission and processing of the cross-border payment and clearing messages, joined forces with the People’s Bank of China Clearing Center, Cross-border Interbank Payment and Clearing Co., Ltd., the Central Bank Digital Currency Research Institute and the China Payment and Clearing Association to establish Financial Gateway Information Service Co., Ltd., whose business scope includes information system integration, data processing and technical consulting.

In this regard, Wang Yongli wrote an article pointing out that strengthening the cooperation between the People’s Bank of China and SWIFT on digital yuan is a very important arrangement for both sides to expand the global development of the digital currency field, and can help SWIFT establish digital currency message standards and processing rules, driving the development of digital currencies around the world, which is of great significance.

“It would be very difficult for countries to build and operate a new cross-border payment messaging network without SWIFT. It would be costly and difficult to operate. Participating in and jointly maintaining the independent professional operation of SWIFT is the most reasonable choice from a global perspective. After the emergence of digital currencies, there will still be different digital currency operating systems in different countries. There will still be a choice between independently establishing their own payment and clearing systems covering the whole world and connecting with users in other countries, or establishing a single intermediate platform shared by all countries and connecting with users in other countries. Undoubtedly, implementing centralized connectivity and standardized messaging platforms is the best option.” He wrote.

The wallet ecology is constantly improving

Mu Changchun, director of the PBOC’s Digital Currency Research Institute, previously said: “To build the digital yuan ecosystem, we need to explore the cooperation model between designated operating institutions and other commercial banks and other commercial institutions.”

The technical framework of the digital yuan is a two-tier operation system. Fan Yifei, deputy governor of the People’s Bank of China, wrote that commercial banks, as designated operating institutions, are responsible for opening digital renminbi wallets and providing exchange services. Other commercial banks and related institutions jointly undertake circulation services and retail management, including payment product design and innovation, scenario expansion, market promotion, system development, business processing, operation and maintenance, etc.

Since 2020, Internet technology companies, payment companies, clearing institutions and other enterprises in China have joined the digital yuan cooperation queue to undertake the research and development cooperation of application scenarios, and constantly enrich and improve the backbone system of the digital yuan ecology. The latest cooperation list is as follows. At present, the digital yuan App can push sub-wallets to institutions in cooperation with ICBC, Agricultural Bank of China, Construction Bank of China, Bank of Communications, Bank of China and Postal Savings Bank of China. According to the current digital yuan wallet APP interface, people can open Didi, JD APP, Jingxi APP, JD Financial, Bilibili, Shanrong Commerce via the six banks. At present, the sub-wallet options are constantly updated.

“The privacy protection of sub-wallets confirms another feature of digital yuan: controllable anonymity. People do not need to worry that the use of digital yuan in normal economic life will leak personal privacy.” Said an industry insider.

Diversified wallet forms

Digital yuan wallet first appeared in the form of APP. Users could download its app after being invited. After accessing the app, they could slide up to make a payment, slide down to receive payment, receive payment and choose to scan code, be scanned or “touch”.

And with the development of technology, the form of digital yuan wallet is increasingly rich. For example, in the trial application of the Beijing Winter Olympics, a digital yuan wearable wallet can be paid by “touching” a ski glove and entering a subway station through a gate. In addition, ultra-thin card wallets, visual card wallets and badges, watches, wristbands and other wearable device wallets are all expected to be options in the future.

A visual card wallet is unveiled in Shanghai on Jan 5. In the staff canteen of Tongren Hospital Affiliated to the School of Medicine of Shanghai Jiao Tong University, a doctor took the lead in realizing the one-stop experience of ordering, consumption and payment with the help of a digital yuan visual card hard wallet. From the appearance of the card shape, there is an ink screen window in the upper right corner, you can clearly see the consumption amount, card balance and payment times.

The visual card is a niche scene designed mainly for the convenience of the elderly and people who do not want to use mobile phones. This is not to say that the visual cards are the main payment vehicle for digital yuan. At present, the visual card wallet piloted by Tongren Hospital can realize dual offline payment with mobile terminals (Huawei, VIVO) supporting digital RMB hardware wallets, POS devices, and other terminal devices with hardware wallet collection capabilities. It is understood that in the next step, the design of the visual card will be further improved, such as the size of the screen, font size, etc., to better meet the needs of the above-mentioned people.

Source: The Paper

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