Why don't Chinese people use cash

Digital currency: will China abolish cash soon?

What will take a little longer in the EU could soon be a reality in China: the introduction of a digital currency that could one day completely replace cash. Even now people are regularly eyed in disbelief who is rummaging around for bills and coins at the cash desk in China's big cities. Many young people usually only pay with their smartphone at all.

The Chinese government is now experimenting with the electronic yuan - also known as Digital Currency Electronic Payment (DCEP) - in megacities such as Shenzhen, Suzhou, Chengdu, Xiong'an and Hong Kong. In Suzhou, with a population of around four million, digital yuan was recently given to the population through a raffle - which can be spent in shops until December 27th. Citizens can use the money via an app and use it to pay in around 10,000 shops - both online and offline, for example in the event of network problems.

Centrally controlled

Unlike the decentralized and anonymous crypto currency Bitcoin or Diem (formerly Libra) - a digital currency planned by the US company Facebook - the digital yuan is a state project that is centrally controlled and is therefore also subject to the control of the Communist Party. If the government has its way, the money should not only be used nationally, but also internationally. It is believed in Beijing that it could become "the future world currency", thereby displacing the US dollar as world currency.

The Chinese government never tires of emphasizing the advantages of such a digital currency: more control over the financial sector and more precise monitoring of money flows - officially in order to be able to better fight money laundering and terrorism, but also to better serve its own people to monitor. In addition, the digital yuan is intended to be a counter-model to Diem and other cryptocurrencies as well as a safeguard for payment options such as Alipay and Wechat Pay that are already available.

Digital euro in EU

In the EU, too, people have been toying with the introduction of a digital euro by the European Central Bank (ECB) for some time. If necessary, this should help to secure the sovereignty and financial stability of the eurozone, said ECB President Christine Lagarde recently. In addition, it should stand up to the decentralized crypto currencies.

The digital euro would technically be based on blockchain technology, but unlike Bitcoin, it would be under the supervision of the ECB. However, the digital currency should not replace cash, but rather be able to coexist with it. The approach in China is completely different, where the digital yuan is now being tested by 50,000 citizens and will one day completely replace cash.

Cash as a penalty

A curious court case last month also proved that cash has long been out in China. The Guangdong court sentenced 2,400 criminals who are said to have cracked the codes of debit and SIM cards and sold them on the black market to a special sentence: the lawbreakers will not be allowed to pay with smartphones or credit cards for the next five years. All you have left is the cash.

The penalty can only be understood by those who are familiar with everyday payment transactions in China: If you want to buy a coffee in Beijing or Shanghai, you often have to do so with a smartphone app. Hotel bills, train tickets and food orders can usually only be paid digitally.

Means of surveillance

While the government likes to portray the digital currency as a tool to fight poverty - for example by giving rural and poorer regions better access to finance - it doesn't take a lot of imagination to see the function of a digital currency for the Chinese surveillance system as well.

For years the government has been working on the so-called social credit system, which provides penalties for tax offenses or comments critical of the government by means of a point system and which should soon work nationwide. Government critics could so quickly turn off payment transactions and thus be forced to "conform", so the fears.

Thrust from Corona

The development is receiving additional momentum from the corona pandemic and the boom in the e-commerce sector in the country. The digital yuan could soon find support globally as well, promising developing countries faster transfers and lower transaction fees.

The Chinese government's announcement that it intends to test the digital yuan at the Olympic Winter Games in Beijing as early as 2022 makes it clear that this is a global competition. The Beijing government would thus be sure of the world's attention. (Jakob Pallinger, December 17, 2020)