Digital Yuan Expanding as Financing Option for Chinese Firms
As digital currency continues to make its mark on the global economic scene, more firms in China are expanding their use of the digital yuan, known as the Central Bank Digital Currency (CBDC). In particular, the digital yuan is becoming a popular method for securing funding for environmentally friendly, or ‘green,’ business initiatives.
Guangdong Electroncis Firm Leads the Way for Digital yuan’s Use in Green Finance
In Guangdong Province, Southeast China, an electronics company recently became the first in its province to secure a ‘green finance’ loan powered by the digital yuan. According to a report by Nanfang Daily News (via SouthCN), the application scenarios for the digital yuan are continuously expanding. The firm in question, Zhongshan Jewelly Optoelectronics Technology, is a leader in the production of LED devices and modules, including a variety of energy-saving lamp chips.
- Company: Zhongshan Jewelly Optoelectronics Technology
- Product Specialization: LED devices and modules, energy-saving lamp chips
- Digital Yuan Loan: Provided through the Guangzhou Branch of the Central People’s Bank of China (PBoC).
The secured loan, worth over $276,000, was transferred to the company’s corporate digital yuan wallet. Zhongshan Jewelly has stated that the digital yuan has provided a new means of securing funding for its increasing product demand, stating that the “digital CNY green loan funding provides us with a new way of financing and making settlements.”
Benefits of Digital Yuan in Green Finance
Insiders in the industry believe that the application of digital yuan to green financing presents multiple benefits. Primarily, the traceability of digital yuan transactions could allow banks to control the flow of funds more accurately, ensuring the authenticity of the financial cycle. This precise control over funds could also prevent the misappropriation of green funding loans.
- Flow Control: Precise monitoring of the flow of funds.
- Authenticity: Greater assurance for the credibility of the financial cycle.
- Prevention of Misappropriation: Reduced risk of funds being misused.
It’s also believed that digital yuan financing could reduce costs for both banks and businesses. Banks could potentially save on the costly process of monitoring green financing funds, while companies could use the digital currency for payments and settlements without paying additional fees. The real-time arrival of funding could improve the efficiency of capital turnover and reduce capital costs.
Expansion of the Digital Yuan in China
Guangdong Province began participating in the digital yuan pilot in December 2022. According to PBoC’s Guangzhou Branch, they plan to capitalize on this momentum by providing more digital yuan-powered green loans and expanding the application of the digital yuan within the field of green financing.
In other developments, Hunan Province’s Tax Bureau and the Changsha division of the PBoC revealed that between January and June 2023, entities in the province used the digital yuan to pay some $51.3 million worth of taxes.
Hunan Province, China.
Furthermore, in an additional step towards the acceptance of digital currency, Industrial bank, a commercial bank based in Fuzhou, recently launched the country’s first CBDC settlement service for bulk commodity trading at the Shanghai Clearing House.