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China switched an entire city to digital money

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It is the world’s largest pilot project for researching and implementing CBDC. The city of Changshu is located just one hundred kilometers north-west of Shanghai. The place is home to over 1.5 million inhabitants and is roughly the largest in Hamburg. According to the local media, from May onwards all civil servants will no longer receive their salaries in the regular way, but digitally – in the form of the e-yuan.

In addition, the municipal payment structures are optimized for the use of the new money. According to local broadcaster Weixin reported the Changshu City Local Financial Supervision and Administration Bureau on April 22 issued a “Notice on the Implementation of the Full Issuance of Digital Renminbi Salaries.” The rule will affect the salaries of civil servants (including public servants) and the salaries of business personnel and staff of state-owned units at all levels in Changshu City, according to the announcement.

A huge step, as China is turning the city of millions inside out to use the digital central bank currency – and making Changshu the largest test laboratory for CBDCs in the world.

Government pushes CBDC adoption

The Chinese government has been pursuing the goal of establishing its own digital currency for some time and is setting an impressive pace with the implementation. A few months ago, the CCP began to provide large-scale payment facilities for the e-yuan. Whether public transport, pharmacy trips, supermarket purchases or water and gas payments. Changshu strives for the most complete coverage possible with payment options for the digital central bank currency.

In order to increase acceptance among the population, the government is running various campaigns. Thus, users of the e-yuan receive benefits in the form of rebates. Furthermore, during the Chinese New Year, one of the most important Chinese holidays, the Chinese government gave away digital money worth over 25 million US dollars to the population to reduce fear of contact and promote adoption.

But although the government is offering a range of incentives, the Chinese population is skeptical. The introduction of the e-yuan is also being discussed controversially internationally. However, this is not only due to allegations against the state of installing another surveillance tool with the digital currency, but also to the country’s existing digital infrastructure. The chairman of the Digital Euro Association, Dr. Jonas Gross explains: “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?”

Hong Kong residents were particularly unimpressed. Earlier this year, the government installed card dispensers for e-yuan hardware wallets to facilitate onboarding. Four days later moved in local medium a sobering record. Just 625 people installed the digital wallet. Even a 20 percent discount on purchases couldn’t change that.

Controversies surrounding CBDCs

With the conversion of wage payments, the use of the e-yuan is now becoming mandatory for many Changshu residents. It is hardly surprising that Hong Kong in particular is refusing to use the new money. The special administrative region has been fighting for its autonomy and political independence from the Chinese government for years.

Critics fear that the government is introducing another powerful control and monitoring instrument with the digital central bank currency. Because anonymous payments such as cash are a thing of the past with the introduction of the e-yuan, since governments can theoretically trace every digital financial transaction.

In addition, the digital currency makes it easier for the state to freeze financial channels or accounts or to cut them off from the payment system. The Chinese government is also gaining greater influence in the distribution of money. The centralized issue of CBCDs also weakens the financial sector’s resilience to crises, as they come with a significantly higher concentration of risk.

CBDCs on the rise?

Still, states around the world are considering adopting a CBDC. Over 100 countries are currently engaged in research, development and pilot projects. Development is also in full swing in Europe. Yesterday, April 24th, the European Central Bank (ECB) issued a report to the digital euro. This explains the access and distribution options for the digital currency. The provision of the CBDC should be guaranteed via existing financial apps or an application developed by the ECB.

However, acceptance among the population is also low elsewhere. Nigeria is one of the few countries that has already introduced a CBDC. With fees and cash limits, the government is trying to drive the population into central bank money. In February, the measures triggered protests across the country.

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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