China uses digital yuan to boost virus-hit spending

© Reuters. FILE PHOTO: A sign indicating the digital yuan, also known as e-CNY, is photographed at a shopping mall in Shanghai, China, May 5, 2021. REUTERS/Aly Song/File photo

SHANGHAI (Reuters) – China is using the digital yuan to stimulate consumption in its pandemic-hit economy, and more e-yuan applications are expected in the future to improve the transparency and effectiveness of government policies.

The southern city of Shenzhen began giving out free digital cash worth 30 million yuan ($4.5 million) on Monday to revive consumption and aid businesses. Just a few days ago, the Xiongan New Area in northern Hebei province launched a similar campaign, giving out 50 million yuan worth of electronic renminbi “red envelopes” as gifts.

China is leading the global race to develop a central bank digital currency. The issuance of e-RMB subsidies can both promote consumption and further promote the use of e-RMB.

According to the central bank, by the end of 2021, transactions using e-renminbi totaled 87.6 billion yuan, with 261 million personal e-wallets opened.

“Previously, when the government issued subsidies, there might be certain barriers before the funds reached the recipients,” said G. Bin Zhao, senior economist at PwC China.

“With e-renminbi, the cash goes directly to your hands,” he said, increasing transparency.

Zhao added that in the future the government could use the e-renminbi to pay for pensions, financial subsidies and even infrastructure spending.

Xia Chun, chief economist at wealth management firm Intime Investment Holdings, said the e-renminbi is more efficient and quicker in subsidizing than traditional means, although he believes the current consumption stimulus is too small.

Justin Yifu Lin, an economist at Peking University, said in a speech earlier this month that China should give out 1,000 yuan to every household in lockdown areas, half of which could be digital yuan.

In the latest campaign, consumers in Shenzhen can enter a sweepstakes for a free e-RMB that can be used for online or brick-and-mortar purchases. In Xiongan, digital cash subsidies can be used to purchase products such as food, electrical appliances and furniture.

($1 = $6.6600)

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