China today (Jan. 4) released its digital yuan wallet on Apple’s App Store and on Google Android app stores in the country.
The e-CNY app is currently a pilot version available to customers of financial institutions supporting the project, including most major banks. However, the public release of the digital wallet is another clear sign that China intends to keep to its schedule and launch the central bank digital currency in time for widespread public testing at the Beijing Winter Olympics from Feb. 4 to Feb. 20.
Although widely called the digital yuan, the CBDC is officially the digital renminbi (RMB) or DC/EP, for digital currency/electronic payment systems.
The plan is for digital RMB payments to be used extensively during the Olympics, said Li Lihui, a former president of the People’s Bank of China (PBoC) and head of the blockchain research working group at the National Internet Finance Association of China, according to a report this summer in the China Daily, a newspaper owned by the publicity department of the Central Committee of the Chinese Communist Party.
A full-scale launch should follow later this year.
Why wallets matter
The wallet’s launch matters for a number of reasons, the obvious one being that it means China is on track to meet its launch date.
Still, launching the digital wallet nationwide has its perils. And while China is unlikely to have the security holes plaguing El Salvador’s much-hacked and much-hated Chivo wallet, it marks a turning point for the eight-year digital yuan project: China must now convince its people to use it.
Does e-CNY have legs?
In most countries, this would be a make-or-break point, but in a command economy like China’s, it can eventually force the digital yuan into use.
The recent all-out ban on cryptocurrencies, which will leave the digital yuan CBDC the only crypto game in town, is a sign of what China is willing and able to do.
But, there will be plenty of signs in the coming months of whether China will have an easy or hard time wooing adoption of the first major CBDC. Developing nations from the U.S. to the EU that are considering a CBDC would do well to take note.
Here are five things to watch to see if the digital yuan project is succeeding:
Will consumers load their own money? The digital yuan was highly popular in the initial tests, but those tests were a series of lotteries in which millions of dollars worth of the CBDC was given to tens of thousands of consumers — about $30 worth each — who had a week to download a digital wallet, claim their funds, and use it or lose it.
Now, consumers have to be convinced to download it on their own. However, signs are good, according to the Digital Currency Institute at the People’s Bank of China. In November, it said that in the regions where the digital yuan is currently being tested, 10 million businesses and 140 million people have signed up. However, it reported just 150 million transactions — suggesting those digital yuan transactions are one-offs.
Will consumers add a second or third digital wallet? More than 90% of all Chinese mobile payments are made through AliPay or WeChat Pay. This means essentially everybody with a mobile device uses one or both, and they are accepted everywhere. Consumers could well take an “if-it-ain’t-broke-don’t-fix-it” approach. This is why China’s trying to make its digital yuan more compatible with those dominant payments apps.
Now, that won’t apply as much in the U.S., where Apple Pay and Google Pay are far less used — just 4.5% of in-store purchases are made with mobile wallets, down 26% year-over-year. It’s even worse in Europe, where nearly three-quarters of all consumer transactions are made in cash.
Will merchants adopt it? Again, the command economy factor will play heavily here, but adding and integrating a new point-of-sale system can be a pricy proposition. The lottery tests used a simple QR code system and only tried to sign up a few thousand retailers. Merchants could well take an “If-it-ain’t-broke” approach, too. However, if they pay less transaction fees, e-CNY will look a lot better.
Will privacy deter users? China’s answer to how much privacy consumers will have when using the digital yuan is “controllable anonymity” — a concept it is pushing toward wider global adoption as CBDC rules are being studied. Mu Changchun, head of the Digital Currency Institute, has acknowledged that privacy may be a concern but noted that a fully anonymous CBDC is impossible from the standpoint of anti-money-laundering laws alone.
While China’s government can look into AliPay and WeChat Pay, a digital wallet created by the state could make the process a lot easier and more efficient. Then there’s the merchant side of the equation, where much the same applies.
In the wake of the new social credit score, consumers may be uneasy giving the government more ammunition. On the other hand, if using the new e-CNY wallet boosts that score, it’ll be a big selling point.
Will the digital yuan cross borders? China has been eager to say that its CBDC will be an internal currency for its people’s use, not a political and economic power projection tool. Last April, PBOC Governor Li Bo said, “For the internationalization of the renminbi, we have said many times that it’s a natural process, and our goal is not to replace the U.S. dollar or other international currencies.”
By July, however, it had already issued a white paper evaluating the digital yuan as a means of cross-border payments.