China is working to expand the application scenarios of the digital yuan while paving the way for cross-border payments in the e-CNY, a process that can help facilitate the country’s economic recovery, experts say.
Their observations emerged after the People’s Bank of China (PBOC), the country’s central bank, assured last Thursday that it will promote smooth digital-yuan trials and actively explore innovative applications of the digital fiat currency.
The PBoC said in a statement following a conference on currency matters that it will continuously improve top-level design of the e-CNY and better tackle key problems that may arise during the digital-yuan trials, to coordinate development and security.
Efforts to advance cross-border payments using the e-CNY are also underway.
Eddie Yue, chief executive of the Hong Kong Monetary Authority (HKMA), said the institution will strengthen cooperation with the PBoC in the tests of digital yuan-based cross-border payment tools in Hong Kong, so as to enhance cross-border service efficiency and user experience.
“We will also actively push ahead with the research and application of cross-border digital yuan payments,” Yue said, as part of the HKMA’s endeavours to deepen Hong Kong’s role as an offshore yuan hub and help the currency gain wider usage.
Yue made the remarks while addressing the 2023 Annual Conference of China Society for Finance and Banking/China Monetary and Financial Forum in Beijing last Tuesday.
The progress of e-CNY trials that started in 2019 has gained much attention as China was among the first countries to develop a central bank digital currency, or CBDC, a key financial infrastructure in the digital era and an emerging dimension of a currency’s competitiveness in the international monetary system.
Experts said the announcements indicate that China may focus on expanding the domestic use of the e-CNY, especially in public services, while exploring potential cross-border digital yuan use.
After trials in 26 pilot areas in 17 provinces and cities, the digital yuan has shown a particular edge in scenarios related to public services, whereby its characteristics of programmability can be fully tapped, said a report by Essence Securities.
Leveraging the e-CNY’s programmability that can achieve a precise transfer of funds, a growing number of local governments have launched digital yuan fiscal subsidies.
For instance, Guangdong province’s Shenzhen disbursed 100 million yuan (US$14.56mil or RM64mil) in digital yuan subsidies that were designated to be spent in restaurants during the Spring Festival holiday earlier this year.