Financial digitalisation gets e-CNY trust

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Visitors pay for their coffee using e-CNY during an expo in Fuzhou, Fujian province (LYU MING / CHINA NEWS SERVICE)

As the autumn school semester began in September, Liu Xiaojing, 35, a product manager in Beijing, enrolled her son, aged seven, in an after-school English-language programme. It was a kind of an encore, the boy having completed a similar programme that coincided with the spring semester. However, when she paid the fees this time, of a little more than 3,000 yuan (£366), there was a difference: she did so using digital yuan, or e-CNY.

It reflected the rapid rise in user acceptance of China’s central bank digital currency. Digital payments using apps such as Alipay, WeChat Pay or Apple Pay could soon have competition as e-CNY is increasingly seen as much more than just a new payment method, observers said.

For Liu, e-CNY payment brought an additional benefit: it ensured that each penny, of the tuition fee she paid was strictly owned by her until her child took the lessons. And that meant a whole new level of security and comfort for the young mother.

“I used to feel a bit uneasy upon paying tuition fees upfront,” Liu said. “With e-CNY I feel no such concern because I know this is a government-backed platform. Even if the English course is disrupted for whatever reason, I can rest assured and don’t have to waste time trying to get a refund, which is a big relief.”

Liu used Secured Pay to make the e-CNY payment. Secured Pay is a digital yuan prepaid fund management system. When a consumer makes an advance payment to a business, the system parks the money in an e-CNY wallet that runs a digital yuan smart contract – or a set of computer programmes that automatically execute e-CNY payments according to preset conditions.

In other words, the smart contract examines whether the preset event of payment has taken place and decides accordingly whether or not to transfer prepaid funds in the digital wallet to the business.

The recipient cannot access the money in the wallet immediately and has to wait for the smart contract to transfer the money. Such transfer would take place only after preset conditions are met, such as provision of goods, services, technologies or content. Until the transfer, the prepaid money in the wallet is owned by the consumer.

Secured Pay’s system, unveiled by the Digital Currency Institute of the People’s Bank of China in September, is already in use at Beijing Chaoyang District Houhai Training School.

The system has processed nearly one million yuan worth of payments to the school, accounting for about one-fifth of the institution’s transaction value during the same period, said Zhao Lei, a corporate business expert at the Bank of Communications, which serves as the Secured Pay system operator for the school.

“Consumers showed stronger-than-expected willingness to try the new prepaid fund solution,” Zhao said. Secured Pay, he said, would ensure hassle-free refunds of prepaid money if an educational institution became insolvent or shut down for whatever reason.

With the next five years holding great significance for the country’s modernisation drive, experts said e-CNY is likely to play a growing role in powering China’s digitalisation and inclusive development, with more applications unfolding in business-oriented settings and public services.

Song Ke, deputy director of the International Monetary Institute of the Renmin University of China, said the digital yuan is expected to boost the development of China’s digital economy by facilitating digital and smart payments and reducing transaction costs.

E-CNY can also help enhance financial inclusion because it has developed hardware wallets such as gloves and badges and accommodated offline transactions, satisfying the payment preferences of different users, Song said.

China, which supports financial inclusion, will use e-CNY to facilitate smaller businesses’ fund management and salary payment while making the digital yuan system more friendly to the elderly and people with disabilities, the People’s Bank of China said.

By the end of August 2022, 360 million transactions had been carried out via e-CNY in pilot areas, with the cumulative transaction value totalling 100.04 billion yuan (£12.2 billion), the bank said.