The E-CNY (Pilot Edition) APP will be displayed on mobile phones in Garzo County, Sichuan Province, China on January 4, 2022. Chinese RMB has released an app with the aim of expanding the use of RMB. (Photo credits should be read as / Costfoto / Future Publishing via Getty Images)
Wang Jianfeng | Costfoto | Future Publishing | Getty Images
With the participation of national tech giants like Alibaba and Tencent, China is stepping up its efforts to expand its digital yuan to more people.
However, there are future challenges, and one particular question stands out. Will Chinese citizens who are already using two major mobile payment systems operated by these same technology companies start paying with digital yuan?
The People’s Bank of China (PBOC), the central bank of China, has been working on the digital format of the sovereign currency since 2014.
Also known as e-CNY, it is designed to replace cash and coins that are already in circulation. It is not a cryptocurrency like Bitcoin, as it may be managed and issued by a central bank. Bitcoin is a decentralized digital currency and is not backed by a central bank or a single administrator.
China’s digital yuan is a form of Central Bank Digital Currency (CBDC) that many other central banks around the world are also working on, but China’s central banks are far ahead of their peers around the world.
To date, PBOC has piloted digital currencies through lotteries, with tens of millions of digital yuan distributed to citizens of a few cities in China.
Chinese authorities are currently stepping up their ambition to extend the use of e-CNY to more citizens, even though no national deployment date has been set.
“They feel like they’re ready to expand this further,” Linghao Bao, an analyst at consultancy Trivium China, told CNBC.
In-flight tech giant
Last week, PBOC released an app that allows users in 10 regions, including major cities in Shanghai and Beijing, to sign up and use digital currencies.
China’s two major payment systems are Tencent’s WeChat Pay and Alipay, operated by Alibaba’s affiliate Ant Group.
Perhaps the most important push came on Thursday when Tencent announced that the WeChat messaging app would support digital sources. WeChat has more than 1 billion users and is an essential part of everyday life in China.
Alipay is also a digital source partner.
One of the potential challenges of PBOC is to get people to download new digital source apps and switch between WeChat and Alipay. Therefore, integration with WeChat is important and provides e-CNY with a potentially huge user base.
On Friday, e-commerce giant JD.com announced that it would begin allowing third-party merchants selling on its platform to begin accepting e-CNY.
JD.com was an early partner of Digital Original and previously accepted several payments. Now it’s about to expand further.
Will people continue to use digital sources?
The technical composition and other factors behind digital currencies are still unclear, but one of the more pressing issues is that people are pushing e-CNY even if central banks are trying to promote wider use. Whether to use it regularly.
For example, to use WeChat or Alipay, users simply link their bank account to the app. However, to use the digital source, users must sign up for another app and link it to WeChat or Alipay, or use the digital source app.
“The big question we have is whether consumers will use it. For me, there is no strong incentive for consumers to switch. [from their current systems]”Bao said.
“I don’t see a strong incentive because there is still friction with using digital sources,” he said. “You need to download the app, sign up and then charge your wallet. I’m not sure if consumers want to perform these additional steps.”
The PBOC has used the digital yuan lottery to effectively distribute free money and engage users, but Bao wonders what invites citizens to continue using the digital yuan after spending that money. Was presented.
“How are you going to keep people using digital sources?” He asked.
The Central Bank of China has previously announced its intention to make digital yuan available to visitors to the Beijing Winter Olympics.
At the 2022 game venue in Beijing, the e-CNY app will be available there. But overall, trading volumes are unlikely to match what Alipay and WeChat Pay saw, according to Paul Triolo, head of geotechnology practices for risk consultancy Eurasia Group.
“Even if there is a rise at the Winter Olympics for the foreseeable future, central bank digital RMB transaction turnover is likely to be very small compared to popular payment platforms WeChat Pay and Alipay.” Triolo said. The Chinese currency is also known as RMB or RMB.
“But over time, more digital RMBs are used, especially for purposes such as paying and transporting certain types of government-related invoices, especially if the central bank offers incentives such as red envelopes and other incentives. There may be niche areas that can be. “
Meanwhile, China’s so-called “zero-covid” approach has brought rigorous steps to combat the virus in China. In other words, few foreign tourists participate in the Winter Olympics in Beijing.
“The Olympics were initially seen by Chinese authorities as an opportunity to showcase the potential use of currencies in international settings, but few non-Chinese citizens may use digital RMB wallets at the Olympics. “Triolo added.
The convention was the first real opportunity for tourists to China and foreign visitors to see how digital sources work, but that opportunity is gone.