China expands digital yuan pilot for SME loans to trigger widespread usage

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The People’s Bank of China (PBoC) has continued its crusade to improve the adoption metrics of its central bank digital currency (CBDC) by adding an array of new use cases.

A report by Changsha Evening News disclosed that small and medium enterprises (SMEs) can now apply for loans using the digital yuan. The city of Changsha in Hunan province recorded the first set of transactions after three SMEs successfully obtained loans.

The three firms received loans of 583,000 yuan ($83,300) after the Hunan Provincial Department of Science and Technology accreditation. The funds were processed via the Bank of Communications, a commercial bank assisting the PBoC with the digital yuan pilot program, with the funds earmarked to cater to operating costs.

Banking officials said relying on CBDCs for SME loans has the benefit of “ensuring the authenticity and credibility of the closed-loop circulation of credit funds.” Other perks include the absence of exorbitant fees, faster settlement times, and an additional stream of capital for small and medium-sized firms.

“Online lending in the form of digital renminbi, not only will the loan funds arrive in real time, but companies can also avoid handling fees and save time in transit when transferring funds in digital renminbi, and realize settlement upon payment,” the report read.

Changsha has been deeply involved with the digital yuan project since its inclusion in the second batch of cities to participate in the trial. The city has participated in several schemes to boost the adoption of the digital yuan, including participating in New Year subsidies for shoppers, hardware-based card wallets, and offline payments.

High-ranking members of the Chinese Communist Party (CCP) have expressed a measure of disappointment over the lull in the transaction volume of the digital yuan following the initial wave of adoption. Ahead of a full-scale launch, regional governments are exploring several options to increase their CBDC adoption.

Frenzied push to spur CBDC adoption

Administrators in Changshu in Jiangsu province announced that all civil servants in the city would receive their salaries in digital yuan as several citizens mull over the decision. Changshu’s authorities had previously disclosed that citizens could pay their taxes and utilities using CBDC in a valiant effort to spur growth.

Private firms are not left out of the push with French bank BNP Paribas confirming a collaboration with the Chinese central bank that will see corporate clients merge their digital yuan wallets with their bank accounts. The digital yuan has already seen action in securities and a small stint in cross-border transactions in collaboration with the United Arab Emirates, Singapore, and Hong Kong.

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.

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