Overview Of The E-CNY, China’s Digital Yuan
One of the most interesting areas in studying China and Bitcoin is the Digital Yuan. This guide summarizes the latest updates on the Digital Yuan (e-CNY) project as we enter 2024.
What is the e-CNY/Digital Yuan?
The Digital Yuan is China’s version of a central bank digital currency (CBDC). This means the central bank is directly involved in issuing accounts to individuals. The Digital Yuan is a retail CBDC, designed for use by the general public, unlike wholesale CBDCs that are used by banks. It is intended to replace cash, does not bear any interest, and is pegged 1:1 with the Chinese Yuan.
Where Can You Use the e-CNY?
Specific merchants accept the e-CNY, and it is also used in public transit systems in major cities like Beijing. During the Winter Olympics, it was one of the three accepted forms of payment.
Can I Buy Digital Yuan?
No, you can’t buy Digital Yuan unless you are in one of the 29 pilot areas in China. If you are abroad and don’t have access to the Chinese app store, you won’t be able to get it. More detailed guides explain the 29 areas where you can get the Digital Yuan.
If you try to buy Digital Yuan on an iPhone, you will be denied if your phone location isn’t in one of the pilot areas. However, if you are in one of these areas, there is now a guide for foreigners to onboard the system. Alipay and WeChat Pay also allow registration with international credit cards. This is part of China’s broader effort to attract international visitors, including offering visa-free access for certain countries in 2024.
Is the Digital Yuan an Alternative to Bitcoin?
The Digital Yuan is China’s answer to Bitcoin, a cryptocurrency that the Chinese state has tried to ban. Research for the Digital Yuan started around 2014, with the Digital Currency Research Initiative beginning in 2016. However, there are significant differences between the Digital Yuan and Bitcoin.
- Privacy Tiers: Even though there are privacy tiers, the Central Bank requires personal identifiers to use the system. Even at the lowest tier, you need to provide a phone number, which in China, is tied to your real ID.
- Vendor Selection: The central bank chooses all vendors, and the code is closed-source and cannot be verified online. Initially, the bank experimented with decentralized ledger technology but now uses a centralized ledger. This has cybersecurity implications, as the software is maintained by the government, with access to user data. Unlike Bitcoin, there is no way to verify the code publicly or develop additional features.
- Transaction Data: The central bank selectively releases transaction data, so the network’s status is unclear. From available data, many wallets don’t transact often, and we have to rely on statistics from the People’s Bank of China.
- Price Determination: Bitcoin’s price is determined by the market, while the Yuan is semi-pegged to the US dollar. Some prefer this to avoid volatility, but it may mean missing out on long-term gains that exceed the risk.
Current Status of the Digital Yuan in 2024
The Digital Yuan has been rolled out in 29 cities. Despite the “pilot” language used by the Chinese state, it’s clear that the Digital Yuan is set for full-scale implementation. It is part of how China’s central bank tracks the monetary supply. Although the pilot included expiring funds, adoption is slow. Public stats confirm that the Digital Yuan isn’t very popular. Anecdotal evidence, like reports from the South China Morning Post, indicates that most people prefer Alipay and WeChat Pay.
While the payment volume has grown, reaching $250 billion in the first half of 2023, it still represents just 0.16% of all Chinese monetary volume. This is an uptrend from the $14 billion reported in the first two years of the e-CNY’s start.
Hong Kong has piloted e-CNY acceptance, with guides and favorable mentions in state media, showing China’s intent to fully roll out the e-CNY.
Privacy Implications of the Digital Yuan
The privacy tiers of the Digital Yuan mean that the central bank controls personal identifiers and knows each account balance. The Digital Yuan offers an offline version with hardware smart cards that can transmit value over NFC, but these cards can only hold small amounts.
The Central Bank likely knows each balance and wallet account, along with personal information needed to create those accounts. It can also expire funds, as seen with the airdrops used to trial the e-CNY.
Goals of the Chinese State with the Digital Yuan
The Digital Yuan is not intended to replace Alipay and WeChat Pay. However, China has had issues with the tech sector, detaining founders, and preventing IPOs. The banking system, which works closely with regulators, provides a stable backdrop for the Chinese financial system. China’s main goal with the e-CNY is to create another domestic payment option.
The Digital Yuan was introduced to prevent monetary substitution from Libra and cryptocurrencies like Bitcoin. A paper from the People’s Bank of China cites cryptocurrencies as tools that “pose potential risks to financial security and social stability.”
China is also piloting Project M-Bridge with the BIS Innovation Hub, which involves wholesale CBDCs interfacing with other central banks. The project includes the UAE and Saudi Arabia’s central banks and aims to internationalize the Yuan. China’s strategy is to export digital cash standards to other governments and improve cross-border payments for critical commodities.
By understanding the e-CNY, its uses, and its implications, we can see how China is shaping the future of digital payments. The Digital Yuan represents a significant move towards a cashless society, with both benefits and challenges. Whether it becomes a popular alternative to existing payment systems remains to be seen, but it certainly marks a significant development in the global financial landscape.
