Shenzhen pilot program highlights potential for digital yuan

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Earlier this month, government officials in Shenzhen announced a pilot program to promote the digital yuan with a public giveaway. In collaboration with the People’s Bank of China, 10 million digital yuan ($1.5 million) was distributed to 50,000 winners through a lottery per the local news agency Sina Finance report. 

Each “gift” from the Luohu Digital RMB Red Envelope event was worth 200 renminbi and could be spent from Oct. 12 and Oct. 18 at any of the 3,389 merchants in Shenzhen’s Luohu District. According to the rules of use, the grant money could not be transferred to another person or redeemed in their own bank account. 

Shenzhen authorities proclaimed a total of 47,573 out of 50,000 lottery winners in China had received their prizes. The vast majority of lottery winners spent their “red envelopes” of digital yuan.

Per the announcement, the winners conducted 62,788 transactions accounting for 8.8 million yuan ($1.3 million). This amount spent represents approximately 88% of the total 10 million yuan ($1.5 million) distributed in the giveaway.

Some winners not only spent their “red envelopes” but also topped up their wallets, purchasing an additional 901,000 yuan ($134,000).

Nearly 2 million people applied to take part in Shenzhen’s digital yuan giveaway program. Lottery organizers said they would take back the unused amount of the digital yuan packets if winners did not spend the award by last Sunday. 

The event’s goal was to promote the digital yuan and stimulate consumption as China inches ever closer toward creating a cashless society. China’s central bank digital currency began testing in April. Since then, it subsequently expanded pilots to nine cities, including trials in Shenzhen and Guangzhou, as well as Hong Kong and Macau.

The digital yuan is not a digital currency like Bitcoin. It is a virtual fiat currency issued and controlled by the People’s Bank of China, the country’s central bank. It will not replace digital wallets like Alipay or WeChat Pay but work together with them and other banks, giving Beijing officials a better grasp of its currency circulation. 

China recently began a process to give legal backing for the digital version of its currency. The draft legislation states that the yuan exists in both physical and digital forms. Officials will put the bill to public comment through Nov. 23, hoping to officially issue the digital yuan before the Winter Olympics in Beijing in February 2022.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

See also: CoinGeek Live presentation on Better Payments: Improving the Consumer Experience with Bitcoin