China's $1.5 Million Digital Currency Giveaway Impressed Analysts. Shoppers, Not So Much

China's $1.5 Million Digital Currency Giveaway Impressed Analysts. Shoppers, Not So Much

Reuters David Kirton, Alun John and Samuel Shen  ,Reuters October 19, 2020

SHENZHEN/HONG KONG/SHANGHAI (Reuters) - China's experimental $1.5 million (1.16 million pounds) giveaway of digital yuan to Shenzhen citizens ended on Sunday with acclaim from currency analysts - and scepticism from some users saying they preferred existing shopping tools like the ubiquitous Alipay app. Under the week-long programme, the People's Bank of China (PBOC) gave 200 yuan ($29.75) to each of 50,000 consumers selected in a lottery in digital "red envelopes", echoing the country's traditional way of gifting cash.

The online wallet was accessible via an app, without need for an existing bank account, with payments accepted via smartphone scans in downtown outlets in China's fourth-biggest city, from luxury goods retailers to snack stores. The largest such trial to date in the world's second-largest economy had been hailed by analysts as a step forward for Beijing as it chases what has become a Holy grail among the world's central banks - the first central bank digital currency.

"The event last week really means that the (digital yuan) has already moved from theoretical internal testing to real world practice," said Wang Shibin, co-founder of cryptocurrency trading platform HKbitEX.

But this has sparked fears from some overseas observers: if the digital yuan, which operates outside existing financial infrastructure such as Swift, wins international traction, it could undermine U.S. dollar dominance of global payment systems.

The PBOC did not immediately respond to Reuters' request for comment on how the Shenzhen pilot programme went.  Earlier this month, seven central banks including the United States, Britain and Japan, set out key principles for issuing digital currencies.

Raymond Yeung, chief China economist at ANZ, said the digital yuan would have greater effect domestically as by allowing authorities to monitor currency circulation more closely, it would help prevent money laundering. It could also allow more targeted monetary policy, or, in extremis, levying negative interest rates on cash.

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