Pilot project in Changshu: China is trying out the e-yuan in a city of over a million inhabitants

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• China converts the entire city of Changshu to the E-Yuan
• Government is taking various measures to increase acceptance of the CBDC
• Conversion to e-yuan is viewed critically

China tests CBDC in Changshu

China has been testing the digital yuan in Chinese cities since 2020 and is gearing up for a nationwide rollout that will power the world’s second largest economy in the global race to develop a state-backed digital currency, also known as the central bank digital currency (CBDC). Europe and the US could bring, according to CNN.

About one hundred kilometers from the Chinese capital Shanghai in the city of Changshu, the world’s largest pilot project for researching and implementing digital central bank money has now started. A total of around 1.5 million residents call the place their home. As “BTC-ECHO” now reports, citing local media, from May all civil servants will no longer have their salaries transferred to their accounts as usual, but will receive them as e-yuan. In addition, urban payment structures are to be optimized for the use of the new money. According to media reports, on April 22, the Changshu City Local Financial Supervision and Administration Bureau issued a “Notice on the Implementation of the Full Issuance of Digital Renminbi Salaries.” It is clear that the change will affect the wages of civil servants (including public servants) and the salaries of business personnel and staff of state-owned units at all levels in Changshu City.

However, the project is not Changshu’s first touchpoint with the central bank digital currency. As reported by CNN, the city of Changshu has been paying transit allowances for some government employees in digital yuan since October last year. In addition, China is already on the verge of becoming a cashless society. However, the vast majority of e-transactions are processed via private apps (Alipay and WeChat Pay) that do not fall under the direct control of the state. An official yuan would change that, giving Beijing an unprecedented amount of information about what Chinese residents spend their money on and where. However, an exact timetable for the nationwide rollout has not yet been announced.

Efforts to increase acceptance

The government has already taken various measures to increase the acceptance of the e-yuan among the population. For example, digital yuan users are rewarded with discounts. Also, during Lunar New Year, a major Chinese holiday, the Chinese government has given away more than $25 million worth of digital money to the people to ease reservations and promote the spread of the e-yuan. In addition, the coverage of payment options for the digital central bank currency has already been increased across a large area, including for local public transport, pharmacy trips, supermarket purchases or water and gas payments. In Changshu, however, the aim is to cover as much as possible with payment options for the digital central bank currency. However, the residents of Hong Kong are said to have been particularly unimpressed. Earlier this year, the government set up card-issuing machines for e-yuan hardware wallets to facilitate adoption. However, just four days later, a local medium drew a sobering conclusion: only 625 people installed the digital wallet – and that despite a 20 percent discount on purchases. At the same time, the government has been urging companies, including major Western firms like McDonald’s and Nike, to use the digital yuan during the Beijing Winter Olympics, according to CNN.

Criticism of CBDCs

But even if the government sets a number of incentives, the Chinese population is still skeptical, as BTC-ECHO explains. And the introduction of the e-yuan is also viewed critically internationally. On the one hand, this is because critics fear that the government is introducing a powerful control and monitoring instrument. Because with the e-yuan, anonymous payments, such as those possible with cash, will be a thing of the past. The government could theoretically track every digital financial transaction. The digital currency also makes it easier for the state to freeze financial channels or accounts or cut them off from the payment system. The distribution of money can thus also be more strongly influenced by the Chinese government. In addition, centralized digital currencies such as the e-yuan weaken the financial sector’s resilience to crises because they have a higher concentration of risk.

The country’s existing digital infrastructure is also a point of criticism. The chairman of the Digital Euro Association, Dr. Jonas Gross explains to BTC-ECHO: “Why should a CBDC be used as a means of payment when there are already more efficient, cheaper and more convenient providers such as WeChat Pay or Alipay in China?”

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