PBOC to expand e-CNY use but challenges remain
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On a cell phone in Ganzi (Sichuan Province), China on January 4, 2022, a pilot version of the E-CNY APP was displayed. In an effort to grow digital yuan usage, The People’s Bank of China has launched this app. (Photo credit: / Costfoto/Future Publishing via Getty Images
Getty Images| Costfoto | Future Publishing | Getty Images
China has joined Tencent and Alibaba to increase its efforts to make the digital yuan available to a wider audience.
But there are challenges ahead and one particular question stands out: Will Chinese citizens — who already use two dominant mobile payment systems run by these same tech firms — begin paying with the digital yuan?
People’s Bank of China (PBOC) is the nation’s central bank. has been working on the digital form of its sovereign currency since 2014.
The e-CNY is also known. It was created to replace coins and cash that were already in circulation. Because it is controlled by and issued central banks, it isn’t a cryptocurrency. Bitcoin, a digital currency decentralized from any central bank or administrator, is not backed.
China’s digital Yuan (or digital in Chinese) is one form of central bank digital currency (CBDC) which many other central banks around the world are also working on — though the Chinese central bank is way ahead of its global peers.
The PBOC was established in piloting the digital currency via lotteriesIn a few cities, citizens were given tens or millions of digital dollars.
Despite the fact that a rollout date for the entire country has yet to be set, Chinese authorities have increased their determination to make e-CNY more accessible to all citizens.
“It feels to me like they’re now ready to push this out wider,” Linghao Bao, analyst at consultancy Trivium China, told CNBC.
Board members of tech giants
This week the PBOC launched an appTo allow users to sign up in 10 regions, including the major cities of Shanghai and Beijing to use the digital currency.
Tencent’s WeChat Pay is the dominant Chinese payment system, followed by Alipay (which Ant Group affiliate runs).
The most important announcement came Thursday, when Tencent said that it would be closing its headquarters in China. WeChat messaging app would support the digital yuan. WeChat has over 1 billion users and is integral to daily life in China.
Alipay can also be used as a digital yuan partner.
We are unsure if consumers will use it. Consumers are not motivated to change, according to me.
Linghao Bao
analyst, Trivium China
The PBOC faces a challenge in getting users to download the digital yuan app, and then switch between Alipay and WeChat. Integrating with WeChat gives the eCNY a huge potential user base.
JD.com announced on Friday that the ecommerce platform will enable third-party sellers to begin accepting the eCNY.
JD.com is a partner of the digital yuan. accepted it for payment on a few occasions. It is now looking for ways to grow that.
Are people going to continue using digital yuan for their daily transactions?
There are many unknowns about the technical details of the digital currency. However, the immediate question is whether the eCNY will be used regularly by people, even though central banks try to encourage wider use.
For example, to use WeChat/Alipay users will need to link their bank account with the app. Users will still need to register a separate app to link to the WeChat, Alipay, or the digital currency app in order to access the digital Yuan.
We are unsure if consumers will use it. There is not a strong incentive to consumers switching. [from their current systems],” Bao said.
His explanation was that there are still barriers to using digital Yuan and he doesn’t believe any incentives exist. You must download the app and sign up to top up your wallet. It’s not something consumers would want to do.
Bao questioned how citizens would continue to use digital yuan once they have spent the money.
“How will you make it possible for people to continue using the digital Yuan?” He asked.
Beijing Olympics
China’s central banking previously announced its intent to provide the digital Yuan to all visitors to Beijing Winter Olympics.
For the 2022 Games, Beijing venues will have the ability to access the eCNY app. Paul Triolo from Eurasia Group, who heads the geo-technology department at Eurasia Group, said that overall transaction volumes are unlikely to surpass those of Alipay or WeChat Pay.
Triolo stated that “For the immediate future, even though there’s an increase at the Winter Olympics,” the central bank digital RMB transaction turnover rate is unlikely to exceed the popular payment platforms WeChat Pay or Alipay. The Chinese currency is also referred to as the renminbi, or RMB.
The digital RMB might see more use over the long-term, however, in niche areas such as transportation or paying specific government bills. This is especially true if incentives are offered by the central bank, including red envelopes, and other inducements.
Meanwhile, China’s so-called “zero Covid” approach has led to strict measures to try to stamp out the virus in China — that means very few foreign visitors will be attending the Winter Olympics in Beijing.
Triolo explained that the Olympics are a way for Chinese officials to demonstrate the possibility of using RMB currency internationally. However, Triolo noted that the Olympics will likely be used by very few foreigners who have never heard about the RMB.
It would have been the best chance for visitors from overseas to China to witness the potential of the digital Yuan. But, that is now gone.
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