China’s Winning Formula To Boost Consumption
(5 min read)
A couple of weeks ago, China gave away 10 million digital yuan to a few lucky participants to spend in shops in the city of Shenzhen. While the amount itself is small, a total of $1.5m, the experiment is unprecedented. All the talk globally about the incoming central bank digital currency (CBDC) era is just that at the moment; except for China. While China has spent nowhere near what other countries have on stimulus in 2020 following the Covid crisis, it might soon embark on an extraordinary fiscal policy experiment – one which clearly blurs the lines with monetary policy.
If the success of the Shenzhen CBDC pilot test is any guide, China is ready to proceed with a real-time, on-demand monetary/fiscal policy mix which is
• Targeted on a specific area of the country, town, district, and even shops,
• Focused, since the money can only be spent on consumption,
• Time-constrained, since if unspent within a specific time frame, it expires.
The Shenzhen Digital Currency Pilot Test
China’s CBDC is called Digital Currency Electronic Payment (DCEP). The authorities started experimenting with it in real life situations in April this year. So far, more than 3 million transactions, worth more than 1 trillion CNY, have gone through. The pilot test in Shenzhen was the largest to date in scope and size. Residents were urged to register starting on 9 October through iShenzhen, a blockchain-based online service, for the chance to receive 200 yuan each – to be spent in 3,000+ shops in the district of Louhu. The 50,000 randomly selected individual winners were announced on 12 October, with each sent a link to open a digital wallet containing the prize money.
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