Shenzhen, known for its community of producers and manufacturing resources, it is taking the lead in testing China's digital yuan.
Last week, the city issued 10 million yuan of digital currency to 50,000 randomly selected residents. The government distributed the money via mobile "red envelopes," a tool designed to digitize the habit of giving away money in red packets and first popularized by WeChat's e-wallet.
The digital yuan is not to be confused as a form of cryptocurrency. Rather, it is issued and managed by the central bank, which acts as a legal digital version of China's physical currency and gives Beijing a better understanding of its currency circulation. It aims to complement, not replace, third-party payment apps like WeChat Pay and Alipay in a country where cash is running out.
For example, the central government may in the future issue subsidies to local offices by sending digital yuan, which can help address issues such as corruption.
Shenzhen is one of four Chinese cities to start internal digital yuan testing, it announced a government notice in August without going into specifics. The latest distribution to consumers is seen as the country's first large-scale public test of centrally issued virtual currency.
Nearly 2 million people in Shenzhen have signed up for the lottery, according to a message from the local government. Winners could redeem the 200 yuan red envelope within the official digital yuan app and spend the virtual money at over 3,000 retail outlets in the city.
As a next step, Shenzhen will launch a "fintech innovation platform" (loosely defined) through its official digital currency institution, said a new central government document detailing the city's five-year development measures, including the attraction of major foreign investments in cutting-edge technologies. The city will also play a key role in promoting the international research and development, application and collaboration of the digital yuan.
In April, the city's digital currency vehicle launched a wave of recruiting for technical positions such as mobile app architects and Android developers.
Shenzhen was founded in 1980 as China's first special economic zone and is now home to tech giants like Tencent, Huawei, and DJI, and innovation hubs like HAX and Trouble Maker. President Xi Jinping will visit the city this week to commemorate the 40th anniversary of the city.
While the central bank provides the rationale and infrastructure behind the digital yuan, there is plenty of room for commercial banks and private companies to innovate at the application level. Both the Didi ride-hailing platform and JD's fintech division recently unveiled the steps to accelerate the implementation of the digital yuan in real life.