Photo: iStock
Alexandra Zoltai
21/06/2023 07:50
The first, longer-term goal is to create a digital currency that can compete with other digital currencies, such as Bitcoin while ensuring that the yuan remains the dominant currency in China.
Unlike cryptocurrencies like Bitcoin, the digital yuan is issued directly by China's central bank and does not rely on a blockchain. The value of the currency is the same as its analogue counterpart, the yuan, and for consumers, using the digital yuan is no different than using other mobile payment systems or credit cards. However, payments do not go through a bank and can sometimes move from one e-wallet to another without transaction fees while cash changes hands.
The second, more immediate goal is to transform China's current payment system by providing a cash-like digital payment method: accessible to all, inexpensive, reasonably anonymous, and encouraging competition among payment service providers. E-CNY is the responsibility of the PBOC, which means that e-CNY is completely risk-free. Digital wallets that incorporate e-CNY are not bank accounts. In the PBOC's pilot programmes to date, the e-CNY wallet only requires a cell phone number.
The successful launch of e-CNY can accelerate the pace of currency digitalisation worldwide. If e-CNY catches on in China, it will prompt other central banks to redouble their efforts to develop their own digital currencies.
At the same time, China's world-beating digital yuan has been slow to take off. The People's Bank of China reported that its official e-CNY app had 261 million users by the end of 2021 and that more than 100 billion yuan (about USD14 billion) had changed hands in 360 million transactions by August 2022. These numbers are modest compared to the size of China's population and economy but are expected to increase after pilot sites recently expanded from about two dozen cities to four entire provinces.
The author is a researcher at the Eurasia Center and the director of the Confucius Institute at the University of Szeged