SHANGHAI, (Reuters) – China uses the digital yuan as a stimulus to consumption in its pandemic hit economy. Future e-CNY applications will increase transparency and effectiveness in government policymaking.

On Monday, Shenzhen in southern China began to distribute 30 million yuan (or $450 million) of free digital money. This was done to boost consumption and assist businesses. The campaign follows a similar one by Xiong’an New Area of northern Hebei, which distributed 50 million yuan worth eCNY “red packs” to give away as gifts.

China leads the race to create digital central bank currencies. The issuance of e-CNY subsidy can aid in consumption as well as promote the use of electronic yuan.

According to the central bank, transactions using e–CNY reached 87.6 trillion yuan by 2021. There were 261,000,000 ewallets open.

G. Bin Zhao (senior economist, PwC China) stated that “previously, the government would issue subsidies, it could be possible for certain obstacles before money reaches recipients.”

“With eCNY, cash immediately lands in your hands,” he stated. This increases transparency.

Zhao said that the government could use eCNY in future for fiscal subsidies, pension payments and infrastructure spending.

Xia Chun, chief economist of wealth manager Yintech Investment Holdings said that e–CNY is faster and more efficient when it is about subsidies. However, he thinks the current consumption stimulus size is too small.

Lin Yifu from Peking University, an economist, stated in a speech that China should give 1,000 yuan each family living in restricted areas. Half of this amount can be converted to digital yuan.

Consumers in Shenzhen have the opportunity to participate in a lottery that will give them eCNY free of charge. They can use this money online and at retail stores. Digital cash subsidies are available in Xiong’an to purchase food, electronic appliances, and furniture.

($1 = 6.6600 )