China hands out digital yuan to boost consumption

Residents of Shenzhen, a city in southeastern China, can enter a lottery to win free digital yuan.

Traditional Chinese red packet

Shenzhen, a city of 12 million people, launched a lottery to distribute 30 million yuan worth of free e-CNY, China’s central bank digital currency (CBDC), among residents. The prize pool is equivalent to approximately $4.5 million.

The lottery is expected to help boost consumption as China recovers from the slump incurred by the draconic lockdowns the country imposed as part of China’s zero-COVID policy. In Shenzhen, lockdown restrictions were eased in late March, with children returning to schools and kindergartens in April. Over the past week, the city reported no locally transmitted COVID cases, according to official accounts.

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Economists praised the e-CNY lottery as easier to distribute than traditional money, but complained that the allocated sum was too small.

Red packets

Shenzhen is one of several Chinese cities to offer residents free digital cash in an effort to restore the economy to pre-pandemic levels.

In Xiong’an, about 100 kilometers southwest of Beijing, the authorities handed out approximately 50 million yuan worth of e-CNY (around $7.5 million). The subsidy came in the form of digital “red packets” inspired by the money-packed red envelopes traditionally gifted to friends and family at Lunar New Year.

In Nansha, a small administration zone in the Guangzhou province, not far from Shenzhen, the authorities announced they would distribute 10 million digital yuan worth of “red packets” (about $1.5 million).

Compared to Shenzhen, Xiong’an has a much smaller population, with just 1.1 million people living in the metro area in 2021. Nansha is even smaller, counting approximately 800,000 people.

Hope at home, FUD abroad

Recipients of the subsidy will be able to spend it in-store and online, but outside China, experts have raised concerns that the Chinese CBDC could be underpinned by surveillance mechanisms. In the US, Republican senators have drafted a bill that seeks to prevent app stores operating in the US, including those run by Apple and Google, from hosting apps that accept the digital yuan, Reuters reported.

The People’s Bank of China, which serves as the country’s central bank, began research into digital currencies back in 2014, a year after the first wave of restrictions on crypto. In 2019, two years before China’s country-wide blanket ban on all forms of crypto trading and mining, the central bank announced it was almost ready for deployment, and a year later, Shenzhen was among the first cities to test the new currency.

By the end of 2021, China had 261 million functioning individual digital wallets, according to data shared by the People’s Bank of China.