Shenzhen Using Digital Yuan to Boost Covid-Hit Economy

Officials in Shenzhen in China’s southern Guangdong province are giving out millions in cash via the digital yuan to stimulate its pandemic-hit economy.

The city began distributing 30 million yuan ($4.5 million) of digital money on Monday with the aim of boosting consumption and business.

The move follows a similar handout of 50 million yuan last week in Xiong’an New Area in northern Hebei province, where “red packets” of e-CNY were delivered as gifts.

Analysts say more use of the digital currency can be expected in the future to boost the adoption of digital wallets, plus transparency and the effectiveness of government policies.

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261 Million Digital Wallets

China is at the fore of a global race to develop central bank digital currencies. Issuing e-CNY subsidies can aid consumption and promote use of the electronic yuan.

Transactions using e-CNY totalled 87.6 billion yuan at the end of 2021, with 261 million individual e-wallets opened, according to the central bank.

“Previously, when the government issued subsidies, there could be certain obstacles before the money reaches the recipients,” G Bin Zhao, a senior economist at PwC China, explained.

“With e-CNY, the cash directly lands into your hands,” boosting transparency, he said.

Zhao added that in the future, the government can use digital yuan for pension payments, fiscal subsidies and even infrastructure spending.

Xia Chun, chief economist at wealth manager Yintech Investment Holdings, said that compared with traditional means, e-CNY is more efficient and swift when it comes to subsidies, although he feels the size of the current consumption stimulus is too small.

Lin Yifu, an economist at Peking University said in a speech earlier this month that China should hand out 1,000 yuan to each family in locked-down areas, half of which can be in digital yuan.

In the latest campaign, consumers in Shenzhen can join a lottery for the free e-CNY, which can be used to shop online or at stores. In Xiong’an, digital cash subsidies can be used to buy products including food, electronics appliances and furniture.

• Reuters with additional editing by Jim Pollard