China aims to be the first major country to issue a sovereign digital currency. The tests are starting on a large scale in this country where mobile payment is already popular. Last month, in 10,000 shops in the city of Suzhou, west of Shanghai, customers were able to pay in e-yuan.

Not enough to shake up Zhao Shuai's daily life. Behind his stand of sweet potatoes and hot chestnuts, this trader from Suzhou, in eastern China, barely pays attention to the new sign placed in front of his checkout. "Digital renminbi", is written in Chinese characters, above the acronym "e-CNY". Zhao Shuai does not really see the point, but who cares: “As long as there is business, we welcome all kinds of currencies! laughs the seller, more concerned about his chestnuts in the fire.

In 10,000 shops and stalls in Suzhou, customers were able, from December 11 to 27, to pay with a new currency: the digital renminbi, from the official name of the Chinese currency, also called “digital yuan”. In this city west of Shanghai, China has just completed a large-scale test, an important step for the Asian giant whose ambition is to be the first major country to issue a sovereign digital currency.

China was beaten by the Bahamas, where digital currency has been circulating since October but is racing ahead of the world's major central banks. According to a survey conducted in 2019 by the Bank for International Settlements (BIS) among 66 central banks, 80% of them are working on the subject of digital currency, but only 10% have developed a pilot project. Covid-19 and the growing use of dematerialized payments convinced the European Central Bank (ECB) to speed up its work on the subject. But the ECB remains cautious and will decide in mid-2021 whether it is appropriate to go further. “Our role is to ensure confidence in the currency, explains Christine Lagarde, President of the ECB, in a report published in October on the subject. This means being certain that the euro will be adapted to the digital age. »

After six years of preparatory work, the People's Bank of China (PBoC) no longer has the shadow of a doubt. Beijing presents the digital yuan as a simple and secure solution that will facilitate everyday payments in a context of rapid dematerialization of transactions. The arrival of uncontrolled cryptocurrencies, such as bitcoin, was a first alert for Beijing, which considers them as speculative products and promoting illegal activities. Immediately after, the spectacular announcement of the Libra project by the American giant Facebook finally convinced Beijing to act quickly, fearing a flight of capital which would threaten its official currency.

China lifted the veil on its Digital Currency Payments System (DCEP) in the summer of 2019 and then ramped up the pace considerably. The first pilots started in April with a limited number of civil servants in four cities (Shenzhen, Chengdu, Suzhou and Xiong'an, a new town south of Beijing). Then, in October, a first large-scale test began in Shenzhen, the Chinese high-tech capital where Huawei's headquarters are located.

The Olympics in sight

The new pilot carried out in Suzhou, a city of 10 million inhabitants, is on an unprecedented scale: 20 million yuan (2.5 million euros, double that of Shenzhen) was distributed to residents via a lottery organized on the city's mobile app. Specifically, 100,000 digital red envelopes (a traditional gift of money) each containing 200 yuan were distributed on December 11, on the eve of a sales day. Beijing has given no official timeline for the launch of its digital currency, but China's goal is to be ready for the Beijing Winter Olympics in February 2022.

In front of the sweet potato stand, 30-year-old Zhou is one of the lottery winners. “Of the four members of my family who played, two of us won,” she explains. To activate her 200 yuan red envelope, she simply downloaded the official digital renminbi app without having to link it to her bank account. The payment system then opens with a portrait of Mao Tse-tung in watermark, identical to that appearing on the banknotes. To buy roasted chestnuts for his daughter, Zhou clicks once to generate a QR Code. She presents it to the seller who scans it. “Beep! ". The transaction is completed.

Extremely simple, the operation nevertheless impresses absolutely no one. And for good reason. If the currency is new, the gesture is familiar in China. Zhou has long been used to paying with his smartphone. "I can't even remember when was the last time I paid cash," she exclaims. In front of Mr. Zhao's checkout, the acronym "e-CNY" has joined the Alipay and WeChat Pay logos, which are ultra-popular in China. Between them, the applications of Alibaba and Tencent carry out more than 90% of mobile payments in China. In what was the country of cash less than ten years ago, QR Codes are everywhere, allowing the modest street vendor to pay even his bills or his metro pass. In major Chinese cities, more than 90% of residents use WeChat Pay or Alipay as their primary means of payment, well ahead of cash and bank cards.

Mobile payment already in fashion

Beijing believes that the already massive use of mobile payment and the experience of fintechs will accelerate the introduction of its sovereign digital currency. Concretely, the system planned by China is done at two levels: the central bank issues digital currency (with the same characteristics as physical currency) which is then distributed to the public through commercial banks responsible for opening and manage portfolios. The role of this e-currency is essentially to ensure retail payments, which limits its impact on the financial system. The underlying technological choice is not yet clear: the Chinese central bank is reserved about the use of blockchain technologies, which are currently too slow to support a large number of simultaneous transactions. The authorities have set a requirement: the system must be able to process up to 300,000 transactions per second!

WeChat and Alipay too powerful?

While wanting to accompany society towards the end of cash, the Chinese government also seeks not to leave the field open to private actors alone. The power of the WeChat and Alipay apps is raising concerns within the Chinese government, which intends to reduce the growing influence of private tech giants. In an attempt to stand out, those responsible for the digital yuan project insist on the security and simplicity of transactions that can be made without an Internet connection, by simply contacting two telephones, making it possible to use it in the most remote provinces of the country. They also assure that the e-yuan could help those who do not have access to traditional banking services. "The positioning of the digital renminbi vis-à-vis other platforms is not yet clear," said Chen Wen, director of the Center for Digital Economy Studies in Chengdu. It could be more positioned to fill the market rather than compete with existing systems: while cash use in China is declining, cash is still relatively important in value. »

Another argument put forward by promoters of sovereign digital currency is the fight against corruption, money laundering and terrorist financing. The central bank would in fact have access to the history of all transactions, allowing it to have unprecedented control over financial flows in real time. "The central bank could thus regain control of WeChat and Alipay in terms of controlling the data collected," says an expert in Beijing. With a digital, traceable and controlled yuan at the top, Beijing could know when, where and why people are spending their money. If the Chinese digital currency is not the only one to have to face this problem, the electronic yuan is potentially a new brick in the surveillance apparatus developed by the Chinese authoritarian regime.

A control tool

What are Chinese citizens worried about? "Ordinary people like me don't have to worry about tracking their expenses, but richer people have more to worry about," a shopping center cashier said. Li, a 35-year-old engineer, is more concerned: “It adds to an excessive collection of information,” he says.

With its sovereign digital currency, China also has a longer-term objective: to break the monopoly of the dollar and increase the influence of the yuan on the international scene. Despite the stated ambitions, this internationalization of the Chinese currency is long overdue: the yuan weighs only 2% in international settlements. Will the digital version do better? “The digital yuan will only give a small boost to the internationalization of the currency, points out Maximilian Kärnfelt, analyst at the Merics institute, in a recent note. Currency digitization does not compensate for the shortcomings of the physical yuan. » Restriction of foreigners' access to investments denominated in yuan, control of capital outflows, etc., many Chinese policies restrict the internationalization of the yuan.

On the home front too, the digital currency still has to overcome hurdles to become established in the daily life of the Chinese. Shading the WeChat Pay and Alipay platforms, whose payment is only one service among others, will not be easy. “There are many more functions and promotions available on WeChat and Alipay,” Li observes. “The e-renminbi app looks a bit old-fashioned. For the Suzhou test, the only additional service offered was being able to pay for Communist Party membership by clicking on a tab marked with the hammer and sickle! Most customers surveyed in Suzhou are so used to using WeChat and Alipay that they don't see much point in an additional payment solution. For now, the red envelopes have helped attract people to the digital yuan. As of December 27, the date of the end of the test in Suzhou, 95% of the envelopes had been spent in the referenced shops as well as on the e-commerce site JD.com. But something other than cash donations will have to be found to successfully launch China's sovereign digital currency on a large scale.