A Chinese customer makes an electronic payment on his smartphone in Beijing, China (Photo by NICOLAS ASFOURI / AFP)

A Chinese customer makes an electronic payment on his smartphone in Beijing, China (Photo by NICOLAS ASFOURI / AFP)

Chinese digital currency project courts users with ‘e-hongbao’ lottery trial

Chinese digital currency efforts are being further amped up by China’s central bank with a fresh injection of 40 million renminbi (US$ 6.2 mil) for users in yet another ‘e-hongbao’ lottery. Hongbaos, also known as red packets, are traditionally used in Chinese gift-giving culture, symbolizing luck for the recipient.

China’s development of a sovereign digital currency is not new, as it has been in the works since 2014The state’s latest trial in Beijing targets 200,000 users and is part of its series of real-world trials of the ambitious project. Previous ‘beta’ trials were limited to pockets of users, including those working in state-owned banks and civil servants.

Similar to its previous city trials, Beijing users would have to apply for a lottery ticket through their app by 7 June, for a chance to win 200 RMB (US$ 29.50). Winners will have until 20 June to use their prizes, reports Channel News Asia.

Chinese digital currency and its rapid growth

Named ‘Digital Currency Electronic Payment’, the digital currency has been largely successful in its trials in the cities of Suzhou, Shenzhen, Chengdu, and Xiongan, with plans to introduce it at the 2022 Beijing Winter Olympics.

China is poised to become the world’s most powerful economy to hold a national digital currency if its project is successful nationwide. As it is, two of the nation’s digital giants have already pledged to support the rollout of the project. Additionally, large retail companies such as JD.com have accepted the currency, with many smaller merchants following suit.

The allure of centralized digital currencies

According to a Bank for International Settlements survey, 80% of banks globally are keen on exploring central bank digital currencies (CBDC). The International Monetary Fund (IMF) believes CBDCs can lay the groundwork for highly efficient payment systems, ones that promote financial inclusion.

Additionally, it can motivate a shared ecosystem between the general public, corporations, and the financial industry at large to develop parallel innovations that will also leverage blockchain technology in new, non-payment-related areas.

The threat of cryptocurrencies

Cryptocurrencies such as Bitcoin and Ethereum, with their inherent decentralized nature, appeal greatly to consumer markets at large, including the unbanked – which banks have historically had trouble courting. The biggest threat, however, remains in how the technology can usurp the hold central banks have had on the flow of funds, which can render many of their legacy services obsolete. 

Governments across the world too, are carefully watching the movement of cryptocurrencies. A number plan to, or have introduced regulations on trading activities, including those in the APAC region. Some, like China, have taken extreme steps like completely banning crypto activity

With financial giants such as Goldman Sachs supporting cryptocurrencies, banks are all the more incentivized to develop alternative products to retain their power within the financial sector.

Chinese Digital Currency and its APAC impact

If anyone can successfully launch a digital currency, at scale, it is China. And its efforts as the adoption leader in APAC have in part, inspired governments of these emerging markets to jump on the digital currency bandwagon too. 

Japan is carefully studying its viability, with plans to pilot a digital yen of its own in 2022. And in developing nations such as Cambodia, a digital currency proffers potential independence from its decades-long reliance on the US dollar, thus facilitating increased adoption of its native currency. 

The Bank of Thailand and the Hong Kong Monetary Authority (HKMA) both saw the successful trialing of a distributed ledger technology (DLT) for cross-border fund transfers, under Project InthanonLionRockMultiple countries in APAC are also exploring the development and experimentation of national digital currencies, including India, Indonesia, Vietnam, the Philippines, and Korea. 

Aside from trials of its national digital currency, China is also working with the Central Bank of the United Arab Emirates to develop a cross-border payments project based on DLT. Dubbed ‘m-CBDC Bridge’, the project aims to study the viability of using DLT to enhance the financial infrastructure for cross-border payments, hence benefitting more central banks in Asia and other regions.