China continues to run beta tests for the e-CNY, the country’s central bank digital currency (CBDC), focusing on cross-border payments. The digital currency will co-exist with other mobile payment methods, and it is already incorporated in some Alipay accounts via pilot programmes.
The first e-CNY payment in a cross-border e-commerce payment scenario was conducted this week in the Hainan Free Trade Zone (FTZ).
The local branch of ICBC was the operator of the payment, providing the application programming interface (API). A third-party payment provider owned by HNA Group provided technical support.
Cross-border e-CNY payment requires lower fees, provides higher efficiency, and better protects the privacy of relevant parties, ICBC says, adding that the digital currency will enhance the convenience of trading in the FTZ.
In Hong Kong, pilot programmes were conducted in April through Bank of China (Hong Kong). According to Hong Kong Monetary Authority, the testing process went well, with 200 employees of the bank and merchants participating in the programme.
Seven other pilot programmes have been rolled out in four cities in China, with the participation of more than 750,000 users.
The role of cash in China has been declining over the past 20 years, according to recent research by Fitch Ratings.
E-CNY will further diminish the role of cash in payments and transactions, but is not expected to entirely replace it as there will still be a demand for cash, especially from senior citizens, according to officials of the People’s Bank of China.
Nonetheless, it will surely disrupt the country’s payment ecosystem, and there is much discussion as to whether e-CNY will replace existing mobile payment systems.
China’s central bank has stressed that e-CNY will co-exist with other payment methods including Alipay and WeChat Pay. According to research, the impact of e-CNY on Alipay and WeChat Pay is limited at present but could grow in the longer term with wider adoption.
In fact, e-CNY is already incorporated in some users’ Alipay mobile application through the pilot programmes.
But Fitch notes that the new regulatory regime surrounding the e-CNY could change the revenue structure of existing providers of payment services over the medium term, even though these providers might be authorized to provide e-CNY payment services. Competition among existing fintech platforms could heighten if the authorities were to enable more entities to access payment transaction data, the research notes.