China just launched its new e-RMB in four major cities: Shenzhen, Suzhou, Chengdu, and Xiongan, a special development area that sits just south of Beijing. The digital currency’s being tried out by local businesses and large corporations — including multinational chains like Starbucks and McDonald’s. There’s also more testing planned for the 2022 Winter Olympics in Beijing and Zhangjiakou.
If the digital currency rolls out to the rest of China, the e-RMB will be the first digital currency guided by a large-scale economy.
So what is it and how much of an impact will it really have? The e-RMB will pretty much work like cash. Unlike other completely decentralized digital currencies, it’ll face oversight from China’s bank.
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According to state media outlet China Daily, the e-RMB has already been “formally adopted into the monetary system.” In April, Suzhou used e-RMB to pay travel subsidies for half its public sector workers.
Based on a leaked screenshot of the Chinese digital currency app a few weeks back, Abacus reports that it looks a lot like a mix between Alipay and WeChat pay — China’s dominant mobile payment systems. Like on those apps, a special feature allows users to make e-RMB transfers by bringing two phones close to each other, while other transactions can be completed through the use of QR codes, a system people in China are already well used to.
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In an interview with state broadcaster CCTV, Dong Ximiao, a research fellow at China’s National Institution for Finance and Development, explained that users can also swap out the money in their bank accounts for e-RMB, which will be deposited into a separate “electronic wallet.”
Questions remain however about just what kind of effect the e-RMB will have. Alipay and WeChat Pay, which were both released around six years ago, account for 90% of China’s 17 trillion USD mobile payments market, in a society where attempting to use cash or credit cards can sometimes earn you funny looks.
But the implications could be far greater than everyday consumers may realize.
“Although there is little change from the perspective of user use, from the perspective of central bank supervision, future forms of finance, payment, business and social governance etc, this is the biggest thing ever,” Xu Yuan, Associate Professor at Peking University’s National Development Research Institute, previously told CCTV, according to The Guardian.
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Motivation for the shift to e-RMB could revolve around China’s role in the global currency market. With a sovereign digital currency, China would reduce its reliance on the US dollar and what that dollar influences — including sanctions.
Fear of Covid-19 spreading through bills and coins has also pushed many to use contactless payment systems instead. 20 other countries around the world are experimenting with their own central bank digital currencies, although none have made it to a trial period yet. Facebook has been a prominent proponent of digital currencies in the US, but has faced challenges in launching its Libra system.
The e-RMB will be rolled out to banks first and then to consumers. How widely it’ll be adopted from there is still subject to speculation.
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