Transactions using e-CNY reach nearly $10 billion: updates on the Chinese CBDC
The digital yuan (e-CNY) is the official currency in the Republic of China. The technology has been under development since late 2015 and begin testing in 2019. The Chinese government has engaged four major state banks and technology giants, including Huawei and Ant, to work on digital currency. Financial authorities have partially transferred their deposits into e-CNY and identified areas of the economy to implement the new currency.
The digital currency was expected to launch at the same time as the Beijing Olympics, in 2022, but it’s already happening right now. About 1.55 million e-CNY wallet holders across China are now able to make and receive payments, including utility and government bills, restaurant bills, transportation, and retail payments. Today I want to take a closer look at the reasons for the popularity of this new payment method because even before its official launch, it has become one of the most discussed projects in the world.
Many banks in economically developed countries are considering the prospect of introducing digital currencies to improve their financial systems. The main factors are the competition with cryptocurrencies and the acceleration of international transfers. China’s potential in this area turned out to be greater than that of other countries, because the project, obviously, has already moved from the stage of initial tests and studies. At the end of October, it became known that about 140 million people not only opened wallets for the digital yuan but also used the currency for transactions totalling about $9.7 billion. This statement was made by the Director-General of the Digital Currency Institute of the People’s Bank of China. However, according to him, the official launch of e-CNY has not yet taken place.
It is planned that the digital yuan will be in use on a par with cash. For about half a year, users have been able to cash out the new currency through ATMs. Even tourists can use Chinese currency without opening a bank account.
The methods for introducing e-CNY are varied — from standard issuance to the release of gloves with an NFC chip, timed to coincide with the upcoming Olympics. In this way, all glove wearers will be able to pay contactless, and there will be no need for an Internet connection or connection to a bank account. Scenarios for the mass application of the digital yuan have been developed in sectors such as business, leisure and entertainment, shopping, tourism, catering, and accommodation services. Chinese users can already get a discount at Pizza Hut and KFC restaurants, while the government is negotiating the introduction of e-currency at McDonald’s.
So what will it do for China? Digitalization will simplify RMB transactions and could shatter the general use of the dollar. The eastern country’s leading position in the digitalization of currency can improve the relationship of local companies with China due to the availability of currency and a decentralized operating principle.
Due to the obsolescence of such dollar payment systems as SWIFT, the still young e-CNY looks promising due to higher speed and lower cost. It is likely that the new e-currency will rather be opposed to the U.S. dollar than to other electronic payment methods, as previously assumed, amid a consistent policy of banning cryptocurrency in China.
CBDC can stabilize competition in the financial sector and improve the position of banks in the competition with cryptocurrency transfers. It will allow regulators to control the sphere of digital currencies and their circulation more easily. E-hryvnia is also at the stage of development and implementation. This year, as a pilot project, the salaries of the Ministry of Digital Economy employees are planned to be paid in digital hryvnia. Let’s see what comes out of it.