China’s central bank released a white paper on the progress of the country’s digital fiat currency, the e-CNY, saying that it will steadily push forward pilot schemes of its digital yuan.
The e-CNY is the digital version of the fiat currency issued by the People’s Bank of China. It is a value-based, quasi-account-based and account-based hybrid payment instrument with legal tender status and loosely coupled account linkage, the white paper clarified, adding that the e-CNY is “mainly a substitute” for cash in circulation and will coexist with physical yuan. China has been monitoring the development of the alternative currency and has noted that as the digital economy develops, the share of transactions made using cash has been rapidly declining.
On the back of the development, the PBOC took potshots at cryptocurrencies and berated ‘Bitcoin’ questioning its legitimacy and potential risks to financial security and social stability, citing its lack of intrinsic value, acute price fluctuations, low trading efficiencies and huge energy consumption. China continues to see the blockchain currencies as rogue and unstable given their untraceable nature, Bitcoin and other currencies are banned from trading in the Kingdom.
Global Acceptance
Globally digital currency is being considered as a replacement for paper money, Central Banks including Bank Negara Malaysia have been studying prospect of a single trading unit. The Fed and ECB have been looking into digital currency albeit regulated by the Central Banks as the future, with many monetary authorities keeping a close eye on fintech development and seeking to digitalise fiat currency.
The development of the e-CNY system in China aims to create a new form of RMB that meets the public demand for cash in the digital economy era. “Supported by a retail payment infrastructure that is reliable, efficient, adaptive and open, the e-CNY system will bolster China’s digital economy, enhance financial inclusion, and make the monetary and payment systems more efficient,” read the white paper.
After top-level design, functional development, and system testing have been completed, the PBOC has so far initiated pilot programs in certain representative regions. This has been conducted in trading locales to see their real life application scenarios. Initial projects at the end of 2017 where large commercial banks, telecom operators and internet companies with significant assets, large market shares and strengths in technology development were selected to participate in the project.
Since the end of 2019, the PBOC has launched e-CNY pilot programs in Shenzhen, Suzhou, Xiong’an and Chengdu. Since November 2020, Shanghai, Hainan, Changsha, Xi’an, Qingdao and Dalian have joined the pilot programs.
As of June 30, 2021, the e-CNY has been applied to over 1.32 million scenarios, covering utility payments, catering services, transportation, shopping and government services.
More than 20.87 million personal wallets and over 3.51 million corporate wallets have been opened, with a total of 70.75 million transactions and a transaction value totaling approximately 34.5 billion yuan (about 5.33 billion U.S. dollars. The Central bank has a mandate to advance the pilot e-CNY R&D project in line with China’s 14th Five-Year Plan, with no preset timetable for the final launch.
Efforts will focus on areas including expanding test scenarios to cover all possible scenarios in selected pilot regions, optimising the ecosystem, and improving relevant institutional arrangements and rules. Though technically ready for cross-border use, the e-CNY is currently mainly designed for domestic retail payments.
It also noted that China will actively respond to initiatives of the G20 and other international organisations to improve cross-border payments, and explore the applicability of the central bank digital currency in cross-border scenarios including exchange arrangements.
