China is expanding consumer-focused tests of its digital yuan in its largest and richest cities.
According to a Jan. 25 report by English-language local news outlet South China Morning Post, the central bank digital currency (CBDC) will be tested in China’s capital, Beijing; its commercial center, Shanghai; and the nation’s wealthiest province, Guangdong.
The digital yuan’s highest profile tests began in Shenzhen in September, when city officials held a lottery, giving away $1.5 million in 50,000 in “digital red envelopes” containing 200 yuan—about $30—usable at 4,000 merchants who signed up to accept the digital yuan. That and subsequent tests have been called wildly successful by People’s Bank of China Governor Yi gang.
While not specifying a similar lottery, Beijing Mayor Chen Jining and Shanghai Mayor Gong Zheng both pledged to offer new CBDC pilot programs this year.
Guangdong Governor Ma Xingrui said that the province would promote DCEP tests and support a digital currency innovation zone in Shenzhen, which is considered China’s Silicon Valley.
All those declarations were included in the official’s work reports, which linked the pilot programs to wider plans for financial development and “opening up.”
Formally known as Digital Currency Electronic Payment (DCEP), testing so far has focused on consumers. Officials have said that the digital yuan rollout will eventually expand to back-end business and government uses involving the digitization of financial assets.
As for timing, China has pledged to have a digital currency up and running in time for next year’s Beijing Olympics.
Still, the currency’s launch in China’s biggest cities should not be seen as the final step towards a nationwide rollout, as China’s administration actually plans to deploy its CBDC in smaller cities later. Beijing-based analyst Wang Pengbo explained that this is because of the limitations of the infrastructure and different kind of people that can be found in those places:
“The tests start in big cities where commercial infrastructure, especially the payment system, is more complete, and the residents are more open to new things.”
It will expand to smaller cities as the system becomes more mature, he said.
Pengbo added that the pace of building and testing the digital yuan has been moving so fast, it’s “quite possible for China to become the world’s first nation with a digital sovereign currency,” according to the report.
Which is not entirely accurate, as The Bahamas launched a digital currency called the Sand Dollar in October. Still, The Bahamas is tiny, and China would be the first major economy to create a digital currency.