China to become first fully-cashless nation after pandemic is over

07 May 2020

Last month, China launched its digital currency in four major cities, as contactless payments become the norm in a world that is set to limit the spread of the coronavirus pandemic. 

Banknotes and coins have taken a hit as more people turn towards mobile payments and contactless transactions, as fears of the deadly virus spreading increase. China is now setting itself towards becoming the world’s first cashless society. 

The digital yuan is a public-private initiative, being used on a trial basis in cities including Shenzhen, Suzhou, Xiongan and Chengdu by multi-million-dollar franchises such as McDonald’s and Starbucks, as well as other smaller local businesses. 

Nameer Khan, chairman of the Mena FinTech Association told The National that the currency is a “game-changer” for the financial services industry. 

It is also a very-much welcome break at a time when China’s economy has been battered by the global health crisis. After almost four decades of growth, the world’s second largest economy contracted significantly in the first quarter of 2020 due to the implications of the pandemic. 

The concept of cashless technology is not foreign to the Chinese population, with local tech giants Alibaba and Tencent paving the way for mobile and digital payments back in 2014, steering people away from cash and driving them towards digital transactions. The two conglomerates currently account for 90% of the mobile payments industry, which is valued at $17 trillion, according to Washington-based financial inclusion think tank CGAP.

CGAP noted that the two companies, together with the Chinese government, view 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.”

The digital yuan is a currency which performs similarly to traditional cash, but exists only in a digital wallet, and is controlled by the People’s Bank of China. It is different to a cryptocurrency, which is decentralized by design. 

The South China Morning Post had reported that franchises including McDonald’s and Starbucks are on the list of companies which will test out the digital currency in the near future, together with other local businesses including hotels, bakeries and gyms. 

“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.