China Takes Steps to Become First “Cashless” Society After Covid-19

As contactless payments become the norm amid the worldwide pandemic response, China rolled out its digital currency this month in four cities, setting it up to become the world’s first cashless society.

The digital yuan is a public-private initiative, being tested in Shenzhen, Suzhou, Xiongan and Chengdu by franchisees like McDonald’s and Starbucks, and other local businesses. It is a “game-changer” in financial services, Nameer Khan, chairman of the Mena FinTech Association, told The National, for a country that badly needs a break.

After four decades of growth, China’s economy shrunk in the latest quarter due to the impact of the coronavirus epidemic. Since January, China has recorded more than 83,000 cases of Covid-19 and at least 4,500 deaths.

With the pandemic still being felt across the world, officials believe the worst appears to be over in China, and measures are being rolled out to revive the world’s second-biggest economy.

Chinese people are no stranger to paying for goods and services through their smartphone. Local tech giants Alibaba and Tencent pioneered digital merchant payments around 2014, leading a transition away from cash, where they now account for 90 per cent of the $17 trillion (Dh62tn) mobile payments market, according to CGAP, a financial inclusion think tank in Washington DC.

The companies, as well as the Chinese government, see digital payments “not as a goal in itself but as an entry point to a vast ecosystem of both offline and online goods and services – and they are using the data generated to transform financial services as well as the physical retail industry”, CGAP found. Mass uptake is enabled by the country’s widespread bank account and smartphone ownership.

But such transactions have always relied on a cash-based system. The digital yuan is a currency that behaves much like normal cash, but exists only as code in a digital wallet, backed by the People’s Bank of China. A cryptocurrency, by contrast, is decentralised by design.

Several years ago, China banned initial coin offerings and made it difficult for cryptocurrencies to find a foothold in the country, while simultaneously issuing research papers at regular intervals about developing its own digital currency.

“The digital RMB (remninbi, or yuan) is a natural evolution from digital payments,” Ling Zhang, a vice president at Binance, told The National. “No-one imagined how universal digital payments would be [from Tencent and Alibaba] five years ago. But it is a step-by-step understanding” and now consumers are ready for a digital currency, she said.

Value of mobile payments in China
Value of mobile payments in China

Covid-19, if anything, has been a “catalytic event” for cashless payments, which can rely on a digital currency.

With fears of the virus spreading via bank notes, “the normal way I used to interact with people for the exchange of services or goods is not working anymore”, Gaurav Dhar, chief executive of payment technology company Marshal, told The National. Consumers will be forced to change their habits, he said, and he predicted that they will.

Last month, the UAE Central Bank encouraged the use of online and digital services “as a measure to protect the health and safety of UAE residents”, increasing the maximum payment limit for contactless bank cards.

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