China’s digital currency challenge: winning hearts and minds

The uphill battle may be convincing China’s consumers that they need the digital yuan, officially known as the e-CNY.

Policymakers around the world are watching China’s progress on how digital currency can replace cash. The Bank for International Settlements, an association of central banks, has said that most monetary authorities are considering similar moves, although none have tested an official digital currency on a Chinese scale. The US has not yet clarified its position.

Digital currency promises to change how governments track and manage their economies; This could potentially unlock financial services for the poor around the world and shake up banks, forex markets and cryptocurrencies like bitcoin in the process, while increasing personal convenience and eroding personal privacy.

That kind of influence will be limited as long as there is a lack of enthusiasm for e-CNY among people like Wu Liuying, a 37-year-old office worker in Beijing. “I saw some hype about the official digital yuan, but I am not interested,” she said.

Two payment services—Ant Group Company’s Alipay and Tencent Holdings Ltd’s WeChat app—have already transformed urban China into a cashless society in which the convenience of digital fintech has largely addressed concerns about digital payments. till now neutralized. naturally trackable.

Alipay and WeChat Pay is one of the major reasons why digital money is expected to eventually find acceptance faster in China than anywhere else. Right now, though, apps are also the biggest obstacle facing the government’s version: Many in China think they already have the next big thing in the money.

For example, Ms. Wu said her mobile phone already has payment apps and she doesn’t want another.

According to the People’s Bank of China, China has not set an official launch date for the digital yuan, but more than 140 million people have downloaded digital-wallet software to store the e-CNY, and 10 million merchants have been able to accept the currency. are ready for.

So far 150 million real-world transactions worth about $10 billion have been recorded through card readers in shops, tax bureaus and metro stations with e-CNY. Athletes attending the Winter Olympics in Beijing will have the chance to spend e-CNY using special badges and “wearables”, which include gloves and uniforms, or vending carts with minimal staff at supermarkets.

What is lacking about e-CNY is the evidence that people are struggling to use it.

Most of the e-CNY used in the tests so far is money given by central banks and government agencies, although some government companies are using it to pay employees.

Primarily, e-CNY is distributed in free-to-enter lottery-type promotions and through discount deals designed to encourage downloads of central bank’s apps and digital wallets . are not cheap nationwide; They have been run on specific dates in particular cities and have so far left out small towns and rural areas. Based on central bank data, the average amount spent per transaction was less than $1.

Notably, China’s annual online shopping extravaganza in November, known as Singles Day, had only limited promotion of e-CNY, a currency designed for the Internet.

Online retailer JD.com Inc. plans to encourage adoption of the digital wallet, making it a payment option during the event. The company said 240,000 customers used e-CNY in 240,000 orders, but declined to say how much of the total $55 billion spent during the sale period was; It was probably a fractional part. There was no e-CNY payment option on sites operated by Alibaba Group Holding Ltd., which generated sales of about $85 billion in 11 days, or 8.5 times the amount of digital yuan that was made in 18 months of trials.

Speaking at a November conference, Mu Changchun, who runs the e-CNY project at the People’s Bank of China, appeared to accept the challenge of demand. He added that the “acquisition environment” of e-CNY is a work in progress and issues related to meeting the risk-management and regulatory framework as well as the primary factor preventing full-scale launch.

A McKinsey report in October pointed to e-CNY as an example of how official central-bank-issued digital currencies “have been accomplished with only moderate adoption.” While the tests show that e-CNY does indeed work, the McKinsey report states, they compare with the more than two billion monthly active users reported by WeChat Pay and Alipay.

Wang Xu, who lives in the eastern city of Suzhou, said she’s participated in e-CNY’s trials, that it’s convenient for shopping on JD.com and that she trusts it more than personal apps. Still, she sticks to WeChat Pay and Alipay for daily expenses.

To address privacy concerns, the central bank has said that it will be possible to open e-CNY accounts, which allow spending about $300 per day and about $7,200 annually, without providing much personal information.

Chinese policymakers, who have claimed greater control over the domestic tech giant over the past year, have clarified that they count Alipay and WeChat Pay as accelerators for the eventual adoption of e-CNY. The central bank emphasizes that the design of e-CNY “supports interoperability with traditional electronic payment systems,” which analysts say Signal plans for AliPay and WeChat Pay will eventually use e-CNY. Includes options.

The central bank has so far tested the digital yuan in collaboration with a handful of state-run banks, and how e-CNY might work with the major payments app is not yet clear. The result will have implications for both the tech giant and demand for e-CNY and it is likely that with Beijing’s power behind it, the digital currency will change the payments-services landscape in major ways.

Whether demand will appear for e-CNY is “not the right question to ask,” said Michael Sung, a Shanghai-based American who co-directs a financial-technology program at Shanghai’s Fudan University and focuses on digital currencies. gives advice. He added that China is paving the way for the use of e-CNY, which includes reducing the power of private app providers and setting the stage for digitizing a range of financial assets, from artwork to bonds, to e-CNY. will make it indispensable.

“The country is mobilizing in a big way to commercialize it on a large scale,” he said.

To formally launch a digital currency would require a number of complex political choices, including the delineation of specific roles for banks and in-app-payments providers. “Unless these tough decisions are made, you can’t do mass deployments,” said Robert Greene, a non-resident scholar at the Carnegie Endowment for International Peace in Washington.

He added that with the US and many other world powers yet to say how they can digitize their currencies, Beijing may feel less pressure to make those decisions hastily.

This story has been published without modification to the text from a wire agency feed