How China Is Turning an Entire City Into Digital Money

China has named the megacity Changshu a testbed for a central bank digital currency.

China has designated the megacity Changshu as a test lab for a central bank digital currency. Starting in May, civil servant salaries will be paid in e-yuan.

It is the world’s largest pilot project researching the implementation of central bank digital currency (CBDC). Just 100 kilometers northwest of Shanghai lies Changshu. It is home to more than 1.5 million people, about the size of Hamburg. Local media say that all civil servants here will no longer receive their salaries regularly into their bank accounts from May, but digitally in the form of the e-yuan.

In addition, the city’s payment structures will be optimized to use the new money. According to local broadcaster Weixin, the Changshu City Financial Supervision and Administration Bureau announced on April 22 a "notice on the full issuance of digital renminbi salaries." The announcement says the rule applies to salaries of civil servants, corporate staff salaries, and staff of state-owned enterprises at all levels in Changshu.

This is a major step, as China is transforming this million-strong city into a place where a digital central bank currency is used, making Changshu the largest experimental lab in the world for CBDCs.

Government pushes CBDC adoption

The Chinese government has long pursued the introduction of its own digital currency and now aims to roll it out at pace. A few months ago, the CCP began offering digital payment options for the e-yuan on a large scale. Whether it’s public transport, pharmacies, supermarket purchases, or water and gas payments, Changshu is aiming for as complete coverage as possible for digital central bank money.

To boost adoption, the government runs various campaigns. Users of the e-yuan receive discounts. During the New Year, one of China’s most important holidays, the government distributed digital money worth more than $25 million to the population to reduce contact and promote adoption.

But despite some benefits, the Chinese public remains skeptical. The rollout of the e-yuan is also controversial internationally. This isn’t just about accusations that the state is using the digital currency as a new surveillance tool, but also about China’s already extensive digital infrastructure. The chair of the Digital Euro Association, Dr. Jonas Gross, explains: “Why should a CBDC be used as a means of payment when there are already more efficient, cheaper, and convenient providers in China, such as WeChat Pay or Alipay?”

Especially residents of Hong Kong were not impressed. Earlier this year, the government installed card-issuing machines for e-yuan hardware wallets to make onboarding easier. Four days later, local media drew a sobering conclusion. Only 625 people had installed the digital wallet. Even a 20% discount on purchases couldn’t change that.

Controversies around CBDCs

With the payroll change, the use of the e-yuan is now mandatory for many Changshu residents. It’s not surprising that Hong Kong opposes the use of this new currency. The Special Administrative Region has fought for autonomy and political independence from the Chinese government for years.

Critics fear the government is adding a powerful control and surveillance tool with the central bank’s digital currency. With the e-yuan, anonymous cash-like payments could become a thing of the past, as the government could theoretically track every digital financial transaction.

Moreover, the digital currency makes it easier for the state to freeze or shut down financial channels or accounts. It also gives the Chinese government more influence over money distribution. Centralized issuance of CBDCs weakens the financial sector’s crisis resilience, as they come with a significantly higher cluster risk.

CBDCs on the rise?

Nevertheless, states around the world are considering CBDCs. More than 100 countries are currently involved in research, development, and pilot projects. Europe is also moving forward. Yesterday, April 24, the European Central Bank (ECB) released a report on the digital euro. The report outlines access and distribution options for the digital currency. The CBDC should become available through existing financial apps or ECB-developed applications.

Elsewhere, public acceptance remains low. Nigeria is one of the few countries that has already implemented a CBDC. With fees and money limits, the government is pushing people toward central-bank money. In February, those measures triggered protests across the country.