Back in 2014 the People’s Bank of China announced the beginning of China’s Digital Currency Electronic Payment (e-RMB) project, “the electronic form of the renminbi, with value equivalent to the paper notes and coins in circulation,” the China Daily wrote. In an editorial, the daily paper noted: “Drawing on the experience of core blockchain technology, the digital currency could change the financial system in big ways — by cutting costs and making transactions easier, more convenient and more transparent. Adding, “Unlike decentralized cryptocurrencies, such as bitcoin, that allow users to transfer value with no central authority or third party involved, the government-backed digital currency is put under the centralized mechanism of the central bank and thus is as stable in value as its cash cousin”.
Over the weekend we heard that the e-RMB is now being piloted in a number of major cities including Shenzhen, Suzhou and Chengdu; accounting for a total population of ~38 million. According to the China Daily, trials have also begun in the Xiong’an area, a new economic zone being developed in the south of Beijing, as well as other areas which are to host events for the Beijing Winter Olympics in 2022. Reports suggest the e-RMB has been fully integrated into the selected cities’ monetary systems, with some government employees and public servants expecting to receive their salaries in e-RMB this month. According to a report in the China Daily, the digital currency, which is pegged to the renminbi, will be used by some government employees to cover transport costs in Suzhou, while its use for food and retail in Xiong’an will be the primary focus. According to reports the e-RMB will be offered to the public later this year.
Faced with the current geopolitical environment, a Chinese economy that is less dependent on the US dollar is a more shielded one. The China Daily last week noted, “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”. Adding, “It may also facilitate integration into globally traded currency markets with a reduced risk of politically inspired disruption.”
The digital currency is the first of its kind to be launched in a major economy. In an age where cash is no longer king, and digital payment is accelerating, we could see this digital currency model being adopted across many other countries; with transparency an added bonus. There appears to be an immediate requirement for such platforms as the coronavirus induced cashless payment requirements mount globally and central banks unleash further liquidity.