Shenzhen, one of the biggest cities in China, will be the latest testing ground for the China digital currency. As part of the move to encourage mass adoption, residents of the city received millions in the digital Yuan.
China Digital Currency – A Lottery Launched
According to a recent report by the SCMP, citizens of Shenzhen, often called the Silicon Valley of China, can participate in a lottery where the payout will be in the digital Yuan. Citizens could potentially win part of 10 million Yuan or around $1.47 million. The funds will be disbursed to residents of Shenzhen who can spend them at around 3400 designated stores within the Luohu district.
The district of Luohu will distribute 50,000 red packets, which will contain 200 Yuan or around $30 in the digital currency. Citizens of Shenzhen can apply for the digital currency via the iShenzhen network, which is a blockchain-based network that powers the digital currency.
To store the coins, citizens can download the Digital Renminbi, which is an official state app. The app can be used to create an e-wallet where one can store their digital coins. To ensure citizens use the coins, there is a deadline of up to October 18, 2020. After that, the coins will be taken back. Besides that, they cannot be transferred to a bank account.
Pilot Project For The Digital Yuan
The scheme is part of a pilot for the Chinese digital Yuan called the Digital Currency Electronic Payment (DCEP). By giving digital coins to locals and encouraging them to spend the coins, the central bank will be able to test the transactional capacity of the DCEP. Besides that, it will isolate the trial from the existing payment system and accounts.
The Difference Between DCEP and Other Digital Currencies
Digital currencies such as Bitcoin are usually decentralized. It means that there is no central authority behind them. It helps to prevent centralized manipulation but also increases the chances that they will suffer massive price fluctuations.
The DCEP, unlike other digital currencies, is backed by the Chinese central bank. Thus, its value and circulation will be highly controlled by government policies. The upside is that it will provide users with a convenient digital currency that takes advantage of 21st-century technology.
Besides retail use cases, bill payments and transportation services will be used as potential applications of the DCEP. The central bank has already conducted other pilot tests throughout 2020. These tests took place in the cities of Suzhou, Chengdu, and Xiongan.
China is looking to become a cashless society. The use of a state-backed digital currency could give them the ability to do so. However, with all transactions being digitally recorded, it could be considered a major risk for privacy. The reason for this is that it would eliminate the anonymity that comes with physical cash. It would give the Chinese authorities more oversight over their citizens. However, if implemented correctly, it could help to make China’s economy many times more efficient.
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