Digital yuan makes big strides

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People show their e-CNY digital wallets in Chengdu, Sichuan Province, in March 2021 (HE HAIYANG / FOR CHINA DAILY)

Successfully riding the digitalisation tide in 2021 was the Chinese yuan, which is attracting more users to its digital version.

According to the People’s Bank of China (PBOC), the country’s central bank, more than 140 million personal digital wallets for e-CNY have been created and another 10 million company digital wallets were opened as of 22 October 2021. More than 150 million transactions have been made via digital wallets, with the total transaction value approaching 62 billion yuan (£7.2 billion).

Meanwhile, more than 3.5 million application scenarios for e-CNY accounts have been explored. A growing number of brick-and-mortar stores in Beijing and Shanghai, as well as online retailers, are getting themselves connected to e-CNY payments.

The proliferation of digital wallets indicates a much bigger market. HuaAn Securities expects that software and hardware upgrades related to the application of e-CNY can be translated into a market value amounting to over 140 billion yuan (£16.03 billion), of which 5.1 billion yuan (£584 million) is contributed by transformation of banks’ core systems, 50.7 billion yuan (£5.8 billion) from ATM upgrades and 19.2 billion yuan (£2.2 billion) derived from improved card readers.

Mu Changchun, head of the PBOC’s Digital Currency Research Institute, said substantial progress in the application of digital yuan had been made in the second half of 2021. The number of newly opened personal digital wallets has increased by 6.7 times in less than four months since the end of June, which is one snapshot of the explosive expansion of the e-CNY market.

The progress was not realised overnight. As early as 2014, a special team has been set up to study the framework, key technologies and circulation of the e-CNY. Mu’s institute was founded two years later to build the first prototype of the digital yuan. As approved by the State Council, the PBOC launched development of the e-CNY by working with commercial institutions in 2017. Top-layer design, standards, functions and joint tests of the e-CNY were finished in early 2020.

In a white paper released by the PBOC in late July 2020, the central bank laid out the background and purpose of introducing the e-CNY, which included the country’s transition towards a digital economy, the decline of the use of cash, the rapid rise of cryptocurrencies and the development of central bank digital currencies – or CBDC – around the world.

Similarly, the Bank for International Settlements, the International Monetary Fund and the World Bank made a joint call in early July 2020for global co-operation in the development of CBDC to address the potential macro-financial consequences that CBDC might cause.

While addressing to the 30th Anniversary Conference of the Bank of Finland Institute for Emerging Economies in early November 2021, Yi Gang, governor of the People’s Bank of China, said that the design and use of digital yuan should be further advanced.

Mu of the Digital Currency Research Institute said more diversified smart and tailor-made digital yuan wallets will be introduced. Security and risk-management mechanisms should be optimised by introducing independent supervision measures over the use of e-CNY, Mu added.

Meanwhile, the digital yuan will facilitate the development of green finance and help achieve China’s goal of reaching carbon neutrality.

Previously published on Chinadaily.com.cn