- The Chinese government revealed that public servants in a selected city will receive their salaries in digital renminbi (RMB) or digital Yuan starting May 2023
- In 2020, pilot programs testing the use of the currency in various settings, such as transportation, retail, and government services, were launched in four cities, including Shenzhen and Suzhou.
- Digital RMB is designed to facilitate online and offline transactions; individuals can use it without an internet connection.
In a recent announcement, the Chinese government revealed that public servants in a selected city will receive their salaries in digital renminbi (RMB) or digital Yuan, the China Central Bank Digital Currency, starting May 2023. The decision comes as part of China’s ongoing efforts to promote the adoption of digital currencies and boost financial inclusion across the country.
The city that was selected for this trial program has not been officially named, but it is known that this is not the first time that China has experimented with digital RMB.
In 2020, pilot programs testing the use of the currency in various settings, such as transportation, retail, and government services, were launched in four cities, including Shenzhen and Suzhou.
The People’s Bank of China issues Digital RMB, e-CNY, a central bank digital currency (CBDC). Unlike other cryptocurrencies, a centralized system operates it and is not decentralized. Digital RMB is designed to facilitate online and offline transactions; individuals can use it without an internet connection.
Central Bank Digital Currency
The country’s central bank issues and backs a CBDC, or central bank digital currency. It is a digital form of the country’s fiat currency. Individuals can use it for payments and transactions in the same way as cash or traditional bank deposits. Since it functions as a digital representation of physical currency. CBDCs aim to offer a secure and efficient payment system and can bring benefits such as increased financial inclusion, reduced costs, and improved transparency. It is important to note that CBDCs differ from cryptocurrencies like Bitcoin. Cryptocurrencies operate independently of traditional banking systems and do not have the support or backing of a central authority.
One significant advantage of using digital RMB is that it is not subject to the same transaction fees as other payment methods, such as credit cards or e-wallets. This feature could make it an attractive payment option for individuals and businesses in China, particularly for those who do not have access to traditional banking systems.
Concerns over China CBDC
However, the adoption of digital RMB CBDC has also raised concerns about the potential for increased government surveillance, as the authorities can track all transactions. The Chinese government has repeatedly denied allegations of using digital RMB as a tool for mass surveillance, emphasizing that the currency’s primary goal is to promote financial inclusion and reduce the costs of cash circulation.
It remains to be seen whether other cities in China will follow suit and adopt digital RMB for their public servants’ salaries or if this will remain a localized experiment. Nevertheless, this move represents another significant step towards China’s goal of creating a fully digital economy and promoting the use of CBDC in everyday transactions.
China CBDC Pilot tests growing
China’s central bank, the People’s Bank of China (PBOC), began experimenting with digital RMB in 2020, starting with pilot programs in four cities: Shenzhen, Suzhou, Chengdu, and Xiongan. These pilot programs tested the use of digital RMB in various settings, including transportation, retail, and government services.
In July 2021, the PBOC announced plans to expand the pilot program to more cities and regions, including Beijing, Tianjin, and Hebei province.
One of the primary goals of China’s digital RMB initiative is to reduce the country’s reliance on cash and to create a more efficient, secure, and inclusive payment system. Digital RMB operates on a centralized system, meaning the government can track all currency transactions. This feature has raised concerns about privacy and government surveillance. The PBOC has emphasized that it primarily focuses on promoting financial inclusion and reducing the costs of cash circulation.
Despite these goals, some experts believe digital RMB could enhance the Chinese government’s economic control and promote its geopolitical interests. In particular, some analysts suggest that digital RMB could bypass US-led financial sanctions and increase China’s influence in international trade and finance.
China CBDC History
China began exploring the idea of a digital currency as early as 2014. The People’s Bank of China (PBOC) set up a research team to study the technology behind digital currencies. In 2016, the PBOC announced that it had developed a prototype digital currency. However, they did not provide details about how it would be implemented.
In 2017, the PBOC began conducting trials of its digital currency in four cities: Shenzhen, Suzhou, Xiongan, and Chengdu. These trials involved testing the use of digital currency in various settings, including transportation, retail, and government services.
In 2019, the PBOC announced it was close to launching its digital currency/electronic payment (DC/EP) system. The DC/EP system was designed to operate on a centralized system, allowing the government to track all currency transactions.
In 2020, the PBOC launched pilot programs for its digital currency in the four cities where trials had already occurred. The pilot programs tested the use of digital currency in various settings and used cases, including cross-border transactions.
In 2021, the PBOC announced plans to expand the pilot program to more cities and regions. These included Beijing, Tianjin, and Hebei province. The expanded program will involve a broader range of use cases. In addition to salary payments , they will include the 2022 Winter Olympics in Beijing.
Chinese Central Bank includes digital Yuan in Currency report
In January, (PBOC), included its digital yuan in its annual report on currency circulation for the first time. The report details the circulation and usage of different forms of currency in China, including banknotes, coins, and digital currency. Including the digital yuan in the report indicates the growing importance of digital currencies in China’s economy. It also highlights the PBOC’s efforts to promote the adoption of the digital yuan.
The People’s Bank of China is currently testing the digital yuan (CBDC) in various regions across China. There are plans to roll it out nationwide soon.
It is unclear when or if China will implement the digital RMB nationwide. The ongoing pilot program demonstrates China’s commitment to developing a digital currency. The goal is a currency that can compete with other global currencies. This includes fiat currencies like the US Dollar. They will also have an eye on digital currencies like Bitcoin.