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UK News Could the UK recreate China's digital currency trialled in Shenzhen?

16:31  19 october  2020
16:31  19 october  2020 Source:   dailymail.co.uk

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China will begin trialling payments in its new digital currency in four major cities from next week, according to domestic media. In recent months, China ’ s central bank has stepped up its development of the e-RMB, which is set to be the first digital currency operated by a major economy.

China could threaten to limit investment or put tariffs on British goods. Controls on Hong Kong citizens. China might also refuse to recognise the British citizenship acquired by any BNO residents who move to the UK . Chinese citizens cannot be dual nationals, and citizenship has to be formally

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In the same week the British Treasury announced new proposals to help maintain access to physical cash, around 50,000 people in China were handed 200 digital yuan, around £23, each.

Much in the way the UK government handed out 'helicopter money' to those eating out to help out in August, China's version last week had the dual objective of pumping some cash into the economy while also encouraging citizens to spend digitally using their smart phones.

The trial of China's digital currency, known as the DCEP, took place in the city of Shenzhen, in the south of China near the border with Hong Kong, last week and was massively oversubscribed with just under 2million people applying to take part.

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China ’ s search into creating its own digital currency began back in 2014 and could potentially pose a challenge to the U.S. dollar, according to an article in May’s issue of Foreign It is still unclear when China would proceed with a national rollout and what rules would guide the new digital currency .

China ’ s central bank has introduced a homegrown digital currency across four cities as part of a pilot program, marking a milestone on the path toward the first electronic payment system by a major The new currency is being tested in Shenzhen , Suzhou, Chengdu and Xiong’an, a satellite city of Beijing.

The 2.6 per cent of applicants selected by lottery were given a 'red packet' of 200 yuan each through a state-run mobile app which could be spent in just under 3,400 shops in a district of the city by scanning a QR code.

text, calendar © Provided by This Is Money diagram: 50,000 people in the Chinese city of Shenzhen were given 200 yuan, or around £23 in 'digital helicopter money', in a one-week trial as China continued to test its digital currency © Provided by This Is Money 50,000 people in the Chinese city of Shenzhen were given 200 yuan, or around £23 in 'digital helicopter money', in a one-week trial as China continued to test its digital currency

One shop which participated in the trial told the state-controlled international broadcaster CGTN that 'around 10 people a day' were using the digital version of China's currency to pay for things in store.

Those looking to spend using the app could also do this without needing access to the internet for the system to work.

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China ’ s central bank has given the green light for some commercial lenders to run trials of its digital currency , according to people familiar with the matter, bringing it a step closer to becoming the world’s first major monetary authority to issue its own digital tender.

China is said to be planning a major expansion of testing for its digital yuan in a number of developed regions including Hong Kong. DC/EP is already being out through its paces in regions such as Shenzhen , Suzhou, Chengdu and Xiong’an, and commercial entities are also helping with the initiative.

What's going on here?

The giveaway was designed to stimulate consumer spending to aid China's recovery from the coronavirus pandemic.

Figures released Monday revealed the world's second-largest economy has largely bounced back, growing 4.9 per cent between July and September compared to the same three month period last year.

Retail sales were up 3.3 per cent year-on-year last month, as domestic spending also recovered.

But as well as a short-term attempt at jump-starting the economy, the trial is just the latest step in China's attempt to digitalise its currency, something it has been working on for six years.

What's the difference between the yuan and renminbi?

The renminbi is the name of the currency and means the people's money.

It's akin to the UK calling its pound sterling.

The yuan, whose symbol is ¥, is the unit of this currency - like our pounds and pence.

The DCEP, or Digital Currency Electronic Payment, is the name for the digital version of yuan the Chinese government has been working on for the last four years.

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What sets China ’ s DC/EP apart from libra and Carney’s “synthetic hegemonic currency ” (SHC), according to Shulte, is that while libra is little more than early-stage computer code and the SHC doesn’t appear to have gone much further than Carney’s mind, the Chinese cryptocurrency is ready to launch.

China ' s plans for a digital currency could serve as a "foundation" for the yuan's internationalization, allowing it to be distributed across the globe, says Circle's Jeremy Allaire. China ' s new digital currency could encourage worldwide use of the yuan, says CEO.

Spending is still still measured in ¥.

Alipay and WeChat Pay allow users to make payments from a bank account with a Chinese commercial bank by scanning a QR code - these are also digital but do not come under the DCEP as they're private companies, albeit publicly listed.

The DCEP - simply a digital version of the Chinese renminbi - has already been used in 3.13million transactions worth ¥1.09billion or £125million through previous pilots this year across four cities including Shenzhen.

One person in Shenzhen who applied unsuccessfully for the ¥200 or £23 windfall, Shirley Xu, told This is Money: 'I signed up because I'm very interested in DCEP and want to have a first look at how it works.'

Shane Happach, head of global ecommerce at the payments processor Worldpay, said: 'The Shenzhen red packet initiative, is not dissimilar to stimulus packages that other economies have adopted, such as Singapore's tourism vouchers scheme, or even the UKs 'Eat Out to Help Out' scheme, but it is savvy that they are also using it as a moment to encourage adoption of the renminbi app.'

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The People’ s Bank of China , the country’ s central bank, is reportedly developing its own digital currency in response to Facebook’ s Libra. Wang said that the bank decided to create its own digital currency specifically because of the unclear role of the United States dollar once Libra is issued

Contactless payment technology is enabling churches in England to offer a digital collection plate. Mr Christ, from the London-based company, said: "As congregations around the UK carry less and less Churches trialling the use of the digital collection box include: Christ Church East Greenwich, London.

How does digital helicopter money work?

Users who have an account with one of China's four biggest banks can link it to the app and add it to their personal digit wallet - another app on most smart phones.

When it comes to paying, users scan a printed QR code in shops participating in the trial.

In contrast to the UK, where the likes of Apple Pay effectively digitalise an existing bank card, these digital wallets do not use debit or credit cards to function, and instead largely use smartphone apps linked to bank accounts, and QR codes.

'China's payment system has evolved into a framework based on non-bank payment platforms and QR codes…in sharp contrast to the Western, bank-centric, card-based model,' Aaron Klein, a fellow at the Brookings Institute wrote in April this year.


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He told This is Money: 'China's payment system evolved quickly from a cash-based system where the banks were waiting for people to move to cards that they controlled into a QR-based system run through Alipay and WeChat Pay.

chart © Provided by This Is Money chart: While increasing numbers of Britons use the likes of Apple Pay or Google Pay, the country is far behind China when it comes to the use of digital wallets © Provided by This Is Money While increasing numbers of Britons use the likes of Apple Pay or Google Pay, the country is far behind China when it comes to the use of digital wallets

'The speed, magnitude, and breadth of this change caught everyone by surprise. The result is a payment system that largely disintermediates the banks, an outcome unique in developed economies.'

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Shirley Xu added: 'China is really big on QR code payments and mobile wallets. With a smartphone in hand, you can buy anything and go anywhere. We don't need to bring any cash with us every day as long as we make sure our phone is fully charged.

'China's eWallet payments are so convenient, they can meet everyone's daily requirements.'

The trial in Shenzhen, visited last week by Chinese president Xi Jinping, is not being run through either of China's tech titans, but by the Chinese government itself.

chart, line chart: The explosion in digital wallet usage in China is largely down to two companies: Ant, which runs Alipay and will soon debut on the stock market, and Tencent, which runs WeChat Pay © Provided by This Is Money The explosion in digital wallet usage in China is largely down to two companies: Ant, which runs Alipay and will soon debut on the stock market, and Tencent, which runs WeChat Pay

There have been 'various incentives' behind the development of the DCEP, Klein added, with the attempt by the Chinese government to muscle in on the territory of Ant and Tencent potentially due to a digital currency leaving it better able to keep an eye on the spending of its citizens.

'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, this is the biggest thing ever', Xu Yuan, an associate professor at Peking University, told the Chinese broadcaster CCTV in April.

There are geopolitical concerns for China too, as it seeks to build an alternative to rival the dollar and stay ahead of the likes of Facebook, which announced last year it wished to develop its own currency.

'China realises they are the global leader in QR-based payments, so why not innovate and expand on it,' Klein said. 'China is leading the movement to digital currency today.'

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a person taking a selfie: The digital giveaway is modelled on the Chinese practice of gifting money to friends and relatives through red envelopes © Provided by This Is Money The digital giveaway is modelled on the Chinese practice of gifting money to friends and relatives through red envelopes

Will the UK switch to  digital spending?

The use of Apple Pay, Google Pay and Samsung Pay is an increasingly familiar sight in the UK, with close to a fifth of adults registering to use these digital wallets last year.

Digital spending is expected to become more common following the coronavirus pandemic, with the government encouraging businesses and people to use contactless payments wherever possible.

Unlike using a debit or credit card which caps contactless payments at £45 per transaction, contactless spending through a digital wallet via your smart phone or watch has no upper limit.

A spokesperson for the payments company PayPal told This is Money: 'The coronavirus pandemic has accelerated the shift towards digital and touch-free payments by two to three years.

'As consumers have adapted their shopping habits to meet social distancing restrictions, we've seen a huge number of traditionally physical businesses embrace digital and contactless payment methods.'

Some 10 per cent of UK consumers surveyed by market research firm Forrester said they'd used a smartphone to make an in store payment for the first time during the pandemic.

Xi Jinping wearing a suit and tie: Chinese president Xi Jinping speaking in Shenzhen on 14 October. The city in southern China was marked as a special economic zone 40 years ago © Provided by This Is Money Chinese president Xi Jinping speaking in Shenzhen on 14 October. The city in southern China was marked as a special economic zone 40 years ago

But usage in China is already far more widespread, and the country leads the world in smartphone payments.

A report earlier this year by Worldpay found 48 per cent of physical payments, twice the proportion made globally, were made using eWallets, while 71 per cent of online payments were made this way.

Their massively increased popularity over the past decade is largely thanks to two major private companies, Ant, which operates Alipay, and Tencent, which operates WeChat Pay.

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Alipay had 1.2billion users and handled ¥106trillion, or £12trillion in payments last year, while the two together had close to 2billion users in 2018.

In China's largest cities, more than 90 per cent of people use the two apps as their main way of paying, while they are also used to send money to others.

Mobile payments have become so dominant in fact that the country's central bank was forced two years' ago to tell shops that it was illegal for them to reject the use of cash.

a view of a city © Provided by This Is Money map: Last week's giveaway took place in the Luohu district on the north eastern side of the city. The decision to hold the one-week trial in the city is likely due to its status as China's tech hub. It is home to some of China's biggest technology companies including Huawei and Tencent © Provided by This Is Money Last week's giveaway took place in the Luohu district on the north eastern side of the city. The decision to hold the one-week trial in the city is likely due to its status as China's tech hub. It is home to some of China's biggest technology companies including Huawei and Tencent

Could our pound go digital?

While contactless and smartphone payments are increasingly common in the UK since Apple Pay arrived on these shores half a decade ago, the government at the moment is currently more concerned about physical cash disappearing than digitalising.

But consumer behaviour continues to evolve, with the pandemic meaning existing trends of more digital payments and fewer physical ones have only sped up, for better and for worse.

Worldpay estimated that by 2023 over a third of online payments will be made using digital wallets, while PayPal said there had also been a growing interest 'in new technology'.

graphical user interface, application: Apple Pay arrived in the UK in 2015. Last year 18% of adults were registered to use mobile contactless payments, four-fifths of whom used them to make a payment © Provided by This Is Money Apple Pay arrived in the UK in 2015. Last year 18% of adults were registered to use mobile contactless payments, four-fifths of whom used them to make a payment

These include the method that is so popular in China, with the company having introduced the ability to pay by scanning a QR code using its app.

'While cash remains critical for many shoppers, the increasing ubiquity of contactless and digital payment options on the British high street will lead to widespread adoption that will last throughout the pandemic and beyond,' it told This is Money.

And even a digital pound cannot be ruled out. In March the Bank of England launched a discussion paper on a 'Central Bank Digital Currency', which could effectively digitalise UK banknotes and could 'allow households and businesses to make fast, efficient and reliable payments'.

The involvement of the likes of the Bank of England would make them different from cryptocurrencies like bitcoin, which are not run by any central authority.

a man wearing a suit and tie: Bank of England governor Andrew Bailey said so-called digital banknotes 'may offer great opportunities and profound questions'. The Bank is looking into their use © Provided by This Is Money Bank of England governor Andrew Bailey said so-called digital banknotes 'may offer great opportunities and profound questions'. The Bank is looking into their use

The Bank, along with six other central banks including the European Central Bank and US Federal Reserve, revisited the subject a fortnight ago.

The group of six, along with the Bank of International Settlements, gave no indication as to whether a Central Bank Digital Currency should be launched, but said any system must co-exist with cash and other types of money, do no harm to monetary and financial stability and promote innovation and efficiency.

Governor Andrew Bailey said of the report: 'CBDCs may offer great opportunities, but they also raise profound questions about the shape of the financial system and the role of the central bank.'

graphical user interface, text, application: A recent study by 6 central banks and the Bank of International Settlements found any digital currency must be as easy to use as other payment methods and have a low cost © Provided by This Is Money A recent study by 6 central banks and the Bank of International Settlements found any digital currency must be as easy to use as other payment methods and have a low cost

Worldpay's Shane Happach called the announcement 'interesting' but said 'the majority of UK consumers are not yet in a place where we will see immediate large scale usage of digital currencies'.

He added: 'There needs to be a marriage of trust and opportunity for technology to see mass acceptance. The Bank of England may provide the former, it will be exciting to see what the use case that drives adoption will be.'

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