China's major banks have introduced digital yuan withdrawals in more than 3,000 ATMs in Beijing. Residents of the capital will now be able to exchange their digital Yuan funds for cash and vice versa.

“China's digital currency is believed to be a game-changer in the global finance industry. The digital RMB will change the borrowing and lending through the banking system, the capital flow within the country and across the border, and how business transactions will be done”, said the Chief Economist at Hang Seng Bank (China).

Digital RMB in ATMs: How does it work?

Beijing’s ATMs have a catching red logo that shows "digital RMB", indicating that the e-Yuan can be withdrawn or deposited in that machine. The left side of the screen shows the "Digital RMB" option, click to enter. The right side of the screen shows two options "digital RMB for cash" and "cash for digital RMB". How does it work exactly?

Exchanging cash for the digital Yuan

The customer enters the required phone number and enters the code received by SMS, the screen immediately displays the wallet’s ID, name, mobile phone number, currency and other additional information. The customer checks and confirms the accuracy of this information and deposits the cash in the port which opens automatically. He is then asked to enter the password of his wallet to finish the transaction. The customer can open the Central Bank’s "digital RMB" app to consult his new balance immediately.

Exchanging the digital RMB for cash

When the customer clicks on the "Digital RMB for cash" option, a QR code appears on the screen. The customer must open his ICBC (Industrial and Commercial Bank of China) app, choose the "Internal Experience Wallet" option, the page immediately displays different amounts, the customer chooses the amount to withdraw and scans the QR code. He is then asked to enter the password of his wallet, then click on the "withdraw" button on the ATM screen as the last step.

On the other hand, on "ABC" machines, the customer does not need the bank’s app but only the SMS verification and the wallet password as mentioned above. The whole process takes exactly 1 minute.

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Beijing to distribute $6 million of digital Yuan in Red Envelope Lottery

The Chinese Central Bank's digital currency continues to gain ground as Beijing's local Office of Financial Supervision and Administration revealed that 40 million of the country's digital yuan ($6.3 million) will be distributed to Chinese citizens via 200,000 red digital envelopes of 200 digital yuan each.

As usual, residents can spend the Digital Yuan at stores that accept the CBDC (China’s digital currency) such as JD, Taobao, or even physical stores. Residents who wish to obtain a red envelope must enter a lottery system via the mobile app of the Bank of China or the Commercial Bank of China.

As the news of the digital yuan's launch broke out, a myriad of companies such as Tencent, Alibaba, Ant, Mastercard and Jd.com have tested China's digital currency. The PBoC (People's Bank of China) also plans to disperse the Digital Yuan at the 2022 Winter Olympics. In addition to Beijing and Shenzhen, the Digital Yuan developed by the PBoC has also been tested in Changsha, Suzhou and Chengdu.

Towards cross-border financial exchanges?

Internationally, China has been testing DCEP’s cross-border use in the Hong Kong Special Administrative Region and has been working with some central banks on international payments involving DCEP. The fact that the PBOC (People’s Bank of China) has set up a joint venture with the global payment messaging network SWIFT is an indicator of China’s plans for the DCEP’s international use.

China plans to use the Digital Yuan in a cross-border program to test the convertibility of capital accounts between Shenzhen and Hong Kong, according to a proposal by a senior Central Bank official.

With the Digital Yuan, China is looking to increase its share of global usage. The program could help accelerate the promotion of capital account convertibility and the internationalization of the RMB. Risks can be effectively prevented and controlled using the Digital Yuan's smart contract and the real-time transaction data monitoring feature.

A publication by the state-run Xinhua news agency, Yujing, said: "We can explore the possibility of allowing market entities with strong cross-border financial demand and risk control capability to use the digital RMB in a convertibility driver." It is believed that this would create "an expressway for cross-border financial innovation".

How can your business outside of China get ready for the digital RMB?

China’s digital RMB is expected to establish the infrastructure for the long-term development of the digital economy and have a profound impact on businesses. A business that operates abroad and makes transactions with Chinese companies or individuals (as business partners, suppliers, customers…) needs to start thinking about how to get ready for DCEP.

1- Consider infrastructure and systems

Your business will need to have the infrastructure and systems in place to make and accept DCEP payments.

As digital technology advances and the digital economy penetrates all areas of life, even if your business does not operate in China, there may still be benefits to considering how DCEP payments from Chinese consumers might work.

You may want to consider that cross-border payments using DCEP can give rise to many systems, data, legal and regulatory implications. Legal and regulatory frameworks are also critical.

2- New payments and cash management

The efficiency and convenience of DCEP for domestic and international payments means clearing and settlement delays could become a thing of the past. The near-instantaneous nature of DCEP payments can have significant implications for your business’s RMB and multi-currency cash management, payments and foreign exchange strategies.

Over the medium to long term, DCEP has the potential to reduce your business’s cash management, liquidity management and operational costs.

3- Financial and technological innovation and integration

DCEP can present significant opportunities for businesses, financial and tech firms. For retail and institutional clients, the emergence of a digital currency can change how financial services are delivered. For example, on the retail side, e-wallets will become the primary method for Chinese consumers to manage their finances and a new channel for delivering digital financial services.

Businesses that plan ahead for Digital RMB-related transactions will be best-placed to take advantage of the new business opportunities and efficiencies and provide an optimal experience for transacting customers and business partners in the future.

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