Starting this month, thousands of workers in a Chinese city will be paid their wages entirely in digital yuan, in what has been described by the central government as a "milestone" for the currency.
Public servants and workers at state-owned enterprises in Changshu, Jiangsu province, will be able to pay for goods and services using the digital yuan, also known as e-CNY via their phones, much like the smartphone payment system.
However, since the digital yuan is issued by China's central bank — and not a decentralised cryptocurrency exchange like Bitcoin — there have been concerns about privacy and the power it gives authorities to control people's finances.
"Big Brother is not only watching you, but also your wallet," one Weibo user wrote.
Authorities started piloting e-CNY in 2019 across multiple cities, including Shanghai, Shenzhen and Xi'an. It has now expanded to 26 cities across 17 provinces.
The Chinese Academy of Social Sciences said Changshu — which was also involved in the trial — had "successfully implemented e-CNY for payroll, which is an important milestone in the practical application of the currency".
People can pay with the digital yuan at participating restaurants and retail stores, and for some entertainment and ride-sharing services.
Local authorities have also been offering incentives — such as store discounts and vouchers — to encourage people to use the currency.
Official data shows that, as of August 2022, more than 5.6 million shops accept e-CNY as a payment option, and more than 360 million transactions with a total value of 100 billion yuan ($22.2 billion) have already been made.
The currency had also been widely used at the 2022 Beijing Winter Olympic Games.
Digital currency to rival WeChat Pay and Alipay
Iris Fan — a bank teller in Shanghai — has been promoting the digital currency to her customers since 2021.
She said banks in China had daily targets for new accounts.
"Most people have no idea what it is, but young customers are attracted to discounts offered by stores when paying with e-CNY," Ms Fan told the ABC.
The 31-year-old, who also has a digital yuan account, said she wasn't too worried about privacy issues and that she trusted banks more than other payment platforms.
"If something went wrong, banks are more reliable than Alipay and WeChat Pay," she said.
Tencent's WeChat Pay is the Chinese social platform's mobile payment service, which lets users book restaurants, order taxis, transfer money to friends and shop online.
AliPay is Chinese e-commerce platform, Alibaba's digital payment platform.
Both WeChat and Alipay have more than a billion users, and China has, in recent years, started to tighten scrutiny of the tech giants to prevent a monopoly.
Explaining how the e-CNY app worked, Ms Fan said she would scan a QR code on her union fee notice to pay.
While the e-CNY wallet works in a very similar way to Alipay and WeChat Pay, the money on those apps reflect cash in the bank.
However, users can still convert digital yuan into cash to pay for items and services that don't accept the digital currency.
Monash University's associate professor, Shi Heling, says the government could be promoting the digital yuan with the hopes of eventually eclipsing the popularity of Alipay and WeChat Pay.
"So that The People's Bank of China [China's central bank] will regain control of the currency's issuance and application," he said.
Dr Shi added that e-CNY could also be used as "a tool to precisely implement national economic policies" and influence consumer spending.
"Let's say the central bank sees you have 100,000 e-CNY saved in your wallet for a while. Then they are capable of feeding you advertisements on a regular basis," he said.
"Maybe they will encourage you to buy a car, or let you know about good deals."
Currency could give the government 'absolute control'
Mobile payment technology is already popular in China, with more than 900 million people using smartphones for their daily spending, according to the Payment and Clearing Association of China's 2022 annual report.
UNSW senior lecturer Eric Lim said he was concerned that digital currencies such as e-CNY could make a person's financial history completely transparent to the central bank and to the government.
"The CBDC [central bank digital currency] gives the central bank, or the central government of a country, close to absolute control over an individual's financial activities," Dr Lim said.
"So that is a frightening scenario in my opinion."
According to China's central bank, citizens can create e-CNY accounts using their mobile number and increase their balance and daily payment limits if they provide more personal information, such as their ID and bank account details.
Chinese laws prohibit telecommunication operators and internet service providers from gathering and using the personal data of e-CNY account holders.
However, that information can be accessed if "competent authorities have corresponding legal documents in strict accordance with the procedures", according to China's Ministry of Industry and Information Technology.
Experts have warned that the Chinese Communist Party could use the system as a weapon to further oppress people and control "disfavoured people".
The central bank has not made public technical details about the development of e-CNY, and experts argue it could strengthen the system if they released that information.
University of Sydney senior lecturer Tang Qiang said that, if the algorithms were open and transparent, experts could verify and check their security and that would also give people more confidence.
The ABC has approached the PBOC for comment.
Efforts to introduce new world currency
Chinese President Xi Jinping had previously said the digital economy — including e-CNY and other technologies — were "key areas" of China's international competition, and Beijing "must seize the first opportunity".
The Chinese yuan has now overtaken the US dollar as the most widely used currency for cross-border transactions in China, according to the latest official data.
Chinese academics say the digital currency will accelerate globalisation of the yuan, because of its advantages in cross-border payments, but the use of the yuan outside China has so far been "minimal".
In March, Chinese yuan accounted for about 2 per cent of all global cross-border payments and 3 per cent of central bank reserve assets, according to a report by the International Monetary Fund (IMF).
The US dollar, on the other hand, was involved in nearly 90 per cent of global foreign exchange transactions.
"The Chinese government wants people to believe the issuance of e-CNY will modernise [the yuan], and make it easier to circulate internationally," Dr Shi said.
"It does not work like that.
"The most essential element of finance is creditworthiness. The reason you are willing to pay for your labour in exchange for a piece of paper is that you know the purchasing power that paper represents.
"Without creditworthiness, no matter if the currency is paper or digital, you won't need it."
