In a crucial move to promote and pilot the expanded use of its national digital currency, a city in eastern China is planning to pay public sector employees entirely in digital yuan.
Changshu City in Jiangsu province, with a population of 1.5 million people, will start paying civic servants and individuals who work for public institutions with the digital yuan by May. The report came from South China Morning Post, citing the Shanghai Securities Journal as its primary source.
The Strong Push for Digital Yuan Adoption
China has been aggressively promoting the use of its centralized digital currency, also known as the e-CNY, as a possible tool to challenge the dominance of the US dollar. The country began exploring the potential of a sovereign digital currency in 2014, and pilot programs were launched in cities like Shenzhen, Suzhou, Xiongan, and Chengdu in 2020. However, the digital yuan still faces hurdles, including limited transaction settlement capacity and the public’s preference for popular digital payment platforms such as WeChat Pay and Alipay, which are owned by Alibaba.
Efforts by Local Governments
To further promote the adoption of the digital yuan, local governments in China have been encouraging businesses and public utilities to accept it as a form of payment. Some cities have also launched small-scale trials to use the virtual currency for government subsidies.
Changshu City has been utilizing the digital currency since June last year to make overtime payments to state enterprise employees, as well as subsidies to hi-tech firms, transport for local government workers, and housing costs. Now, it is expanding its scheme to encompass payment for all work rendered by public servants within its jurisdiction.
Expanding the Use of Digital Yuan
In February, the Jiangsu provincial government unveiled plans to broaden the use of the digital yuan by 2025. The measures include its utilization for government procurement, tax payments, social security, education, and healthcare costs.
It remains to be seen whether or not the Changshu City plan this coming May will be extended to the other parts of the province before its self-imposed deadline.
Pros and Cons of the Move
The move to pay public servants in digital yuan has both potential advantages and disadvantages. Proponents argue that it could help curb corruption by providing a transparent and traceable form of payment, reducing the likelihood of illicit activities. Additionally, by eliminating the need for intermediaries such as banks and payment platforms, the e-CNY could streamline the payment process and reduce transaction costs.
Furthermore, supporters of the digital yuan argue that it could offer increased privacy for individuals as e-payment platforms would no longer have access to transaction information, in contrast to other popular digital payment platforms. However, it should be noted that the digital money would provide the government with real-time information on all transactions, raising concerns about increased surveillance and potential invasion of privacy.
Some citizens have expressed concerns about the adoption of e-CNY as the sole form of payment for public servants. Older individuals, in particular, may face challenges in adapting to digital currency transactions, as they may be less familiar with digital payment methods. Moreover, the limited capacity of the digital money to settle transactions compared to popular digital payment platforms could pose inconvenience and delays in receiving payments for public servants.
International Implications
The digital yuan has primarily been used domestically, but some economic commentators believe that the recent Western sanctions on Russia, including its ban on the use of the Swift international payments system, have accelerated its development and planned international rollout. Furthermore, Hong Kong has been working with the People’s Bank of China to hold trials for the use of the digital currency for cross-border payments, aiming to enable residents from Hong Kong and the Greater Bay Area to use it for travel, living, and retail expenditures.
Final Thoughts
The move to pay public servants in digital yuan will make it easier for the government to monitor transactions and reduce corruption. However, there are still concerns about the government having access to individual transactions, which could compromise people’s privacy. Besides, the digital yuan is still in the pilot phase, and there are hurdles such as the limited capacity to settle transactions that need to be addressed.
The adoption of digital currencies is inevitable, and it is vital for governments to ensure that they are safe, secure, and provide privacy to citizens. China’s move to pay public servants in digital yuan is a significant step towards promoting the use of the digital currency, and it will be interesting to see how it unfolds in the near future.