China Payments

China’s CBDC Pilot Surpasses US$ 5 Billion in Total Transaction Value

Since launching pilots for its central bank digital currency (CBDC) back in late 2019, China has seen 70.75 million transactions being conducted using the so-called e-CNY scheme with value totaling RMB 34.5 billion, or US$5.3 billion, new data from the People’s Bank of China (PBOC)’s working group dedicated to the project show.

As of June 30, 2021, more than 20.87 million personal wallets and over 3.51 million corporate wallets had been created and used to conduct transactions in over 1 million scenarios ranging from utility payment, catering services and transportation, to shopping and government services, the working group says in a new report.

E-CNY is the digital version of the Chinese yuan which the government has been working on since 2017. Issued by the PBOC and operated by authorized commercial banks and non-banking institutions, it’s a substitute for cash in circulation and will coexists with physical RMB with legal tender status and account linkage capability.

The retail CBDC works through both software (e.g. mobile apps and APIs) and hardware wallets (e.g. mobile phones, wearables and other Internet-of-Things (IoT) devices), and is intended mainly for domestic retail payment with hopes for improved efficiencies and financial inclusion.

Motivations

Several reasons motivated the PBOC to launch a retail CBDC, the working group says, including declining usage of cash in China, rising cryptocurrencies and stablecoin adoption, and rapid development of CBDCs by other central banks around the world.

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A survey conducted by the PBOC in 2019 found that mobile payments surpassed cash transactions, accounting for 66% of all transactions against 23% for cash. Among those surveyed, 46% used no cash in any transaction during the survey period.

At the same time, cryptocurrencies, especially stablecoins, have developed rapidly. But out of the thousands of cryptocurrencies that have emerged since the creation of bitcoin, none has emerged as an adequate alternative to fiat currency. Not only that, but cryptocurrencies are today mainly used as speculative investments and for money-laundering and other illegal purposes, posing thus risks to financial security and stability, the report says.

E-CNY pilots

Pilots of the CBDC began in the end of 2019 in several cities, including Shenzhen, Suzhou, Xiong’an and Chengdu, before expanding in November 2020 to Shanghai, Hainan, Changsha, Xi’an, Qingdao and Dalian.

The pilot program now spans the Yangtze River Delta, the Pearl River Delta, the Beijing-Tianjin-Hebei region, and China’s central, western, northeastern and northwestern regions.

During the pilot, the PBOC focused on exploring e-CNY application models, using for example smart contracts to expand the system’s capabilities, and teaming up with mobile phone manufacturers to study offline payment functions and other mobile innovations, the working group says.

Feedbacks have so far been positive, it says, with users citing improved payment efficiency and reduced costs. The general public, micro and small vendors and enterprises noted the convenience and inclusiveness of e-CNY.

Moving forward

Moving forward, the working group says it will further expand test scenarios and continue to explore new application models for the e-CNY system. The PBOC will also be working alongside relevant parties, including authorized operators, to improve pilot schemes and optimize the design of e-CNY.

Institutional arrangements and rule changes will be made to ensure the safe and stable functioning of the system in regards to security management and personal information protection, among other critical areas.

One of the key features of e-CNY highlighted in the report is its “managed anonymity” where small value transactions will remain anonymous, while larger transactions will need to comply with anti-money laundering/counter-terrorist financing (AML/CTF) requirements.

“E-CNY … attaches great importance to protecting personal information and privacy,” the report says, and “collects less transaction information than traditional electronic payment and does not provide information to third parties or other government agencies unless stipulated otherwise in laws and regulations.”

In addition, the central bank says it will strengthen research on the possible implications of e-CNY on monetary policy, financial system and financial stability. It says it’s open to participate in international exchanges and discussions on CBDC “to jointly advance the development of the international monetary system.”

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