China is stepping up its campaign to increase uptake of the so-called digital yuan to coincide with its hosting of next month’s Beijing Olympic and Paralympic Winter Games.
Locals and foreign visitors to the games will be able to use digital wallets or coupons available at banks and hotels to pay for a range of goods and services in the new digital currency.
The digital currency -officially known as the e-CNY- is already in use in China as part of a process that was launched in 2014.The People’s Bank of China, the central bank, reported that more than 140 million personal digital wallets had been created by the end of October, with transactions already amounting to around 62 billion yuan ($9.7 billion).
The initiative is among a number being undertaken by central banks around the world in response to the growth of unregulated virtual currencies, such as Bitcoin.
China’s central bank said last year that the rapid rise of cryptocurrencies was one factor in the decision to go digital, along with the country’s transition toward a digital economy and the decline of cash.
The digital yuan also offers the prospect of the Chinese currency becoming a global payment method to rival the dominant US dollar.
While other countries have been studying the introduction of their own digital currencies, China is currently ahead of the field after setting up a specialist team in 2014 and starting work on a prototype just two years later.
The World Bank and other international institutions have called for global cooperation in developing central bank digital currencies, or CBDCs.
A 2021 survey by the Bank for International Settlements found that 86 percent of central banks, representing countries with close to 72 percent of the world’s population and 91 percent of global economic output, were currently or would soon be engaged in work relating to CBDCs.
While China has forged ahead with its own project, progress elsewhere has been more sluggish.
The Bank of England said late last year that its own digital pound was unlikely to be launched until at least 2025, while Sweden, an early enthusiast of the CBDC concept, said it hopes to have a digital version of its krona by 2026.
Progress is even more uncertain in the United States, where Congress introduced no fewer than 35 bills last year concerning policy on cryptocurrencies. The proposed legislation involves not only measures to regulate current digital currencies, but also on establishing the US’ own CBDC.
As China prepares to showcase the digital yuan at the Winter Games, the US has yet to make up its mind whether it will ever have an e-dollar.
One bill sponsored in the US Senate reflects nervousness among legislators about the progress being made by China. The bipartisan measure raises what its sponsors regard as security concerns created by China’s official digital currency. That may reflect a deeper concern that the growth of CBDCs will challenge the US dollar’s dominance as the major global currency.
As China and some other countries are moving ahead with their digital currency plans, domestic commentators in the US warn that the country may be falling behind. The global accounting firm PwC found that the US ranked 18th in the league table of CBDC innovators, behind not only China but also smaller states such as the Bahamas, Ecuador and Turkey.
Harvard economist Kenneth Rogoff predicted last year that the US was at least a decade away from issuing its own CBDC, while the People’s Bank of China was far ahead of other major central banks.
The growth of the digital yuan would ultimately facilitate the international use of the Chinese currency, Rogoff predicted.
In the shorter term, the digital yuan will be a practical reality for those attending the Winter Games. They will be able to use their digital wallets and coupons to pay for transportation, goods and food from local as well as foreign-owned retailers.
The authorities are reported to be encouraging foreign-owned companies to accept digital yuan payments during the Games, while four State-owned banks have issued new digital coupons in Beijing to pay for subway rides and other purchases.
The Games may represent the next stage in what many see as the inevitable rise of digital money and the eventual disappearance of cash. Promoters of CBDCs argue that they combine the convenience of a cryptocurrency with the security of a state-backed currency.
With China in the lead in the payment revolution, it could be that the country that invented bank notes will also lead the field in ensuring their demise.