Chinese municipal bank issues first digital yuan loan holding IP as collateral

China’s central bank digital currency (CBDC) pilot testing continues to onboard new use cases for the digital yuan. The country has now recorded its first instance of Intellectual Property (IP) financing on the CBDC platform.

The Rural Commerce Bank of Zhangjiagang, located in China’s Suzhou province, has issued the first-ever digital yuan loan backed by intellectual property as collateral. In a press release, the Suzhou Market Supervision Bureau confirmed that a loan of 500,000 yuan (about $74,000) was issued to an unnamed business to fill its capital turnover gap.

Details of the business reveal that it is involved in manufacturing environmental protection equipment and is located in the city’s Nanfeng township. The company is reported to have been struggling financially to keep up with increased demand.

The Zhangjiagang Market Supervision Bureau’s Intellectual Property Office conducted a thorough enterprise analysis and tailor-made the intellectual property pledge financing product. The product was unanimously approved by the Zhangjiagang Financial Supervision Bureau, Market Supervision Bureau, and the Nanfeng Town Government.

According to local reports, banks in Suzhou first started offering digital yuan loans to businesses and individuals in July. The amounts range from 70,000 yuan to 1.5 million yuan ($10,363-$222,074). The scheme has also been introduced in other provinces, including Shaanxi Province, as well as the city of Guangzhou.

The loans go directly to the users’ digital yuan wallet, can be repaid via the CBDC platform, and allows for regulators to track illicit use as well as monitor fund flows for better policymaking.

China going full speed with CBDC trials

Amidst a blanket ban on digital assets, China has been going all out to promote its CBDC platform. While speaking at a press conference in June, the People’s Bank of China’s head of monetary policy, Lan Zhou, confirmed that more cities would soon join the CBDC testing.

Currently, 21 cities spread across 15 provinces have been onboarded to the platform, with over 4.56 million merchants already accepting digital yuan payments. He disclosed that consumers had also done a cumulative 264 million transactions worth $12.27 billion using the e-CNY from the start of 2022 to May.

These strides have been on the back of a blanket ban placed on the digital assets market in China. Meanwhile, the country is encouraging the adoption of blockchain technology and metaverse and NFT (digital collectibles) innovation.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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