With cryptocurrencies officially banned in China, The Red Dragon country is still an ardent supporter of blockchain tech. In April 2020, China became the first country to officially pilot CBDC. Since then, China has also debuted its digital yuan (e-CNY) in the 2022 Winter Olympics in Beijing causing a wave of excitement around it. Given the initial adoption success rate of the digital RMB, researchers from the Chinese Academy of Social Sciences have even predicted that e-CNY holds the potential to become if not global, then at least Asian-wide digital currency. However, the adoption of e-CNY might not be as smooth as it seems. In reality, China’s digital renminbi faces a number of challenges, with domestic hindrances threatening future global expansion.
The main reason contributing to the current downfall of the e-CNY is China’s lead in digital payment systems. China has long been on the road of dumping the actual cash and shifting to cashless transactions through its two mobile payment giants: WeChat Pay and AliPay. Payments through the quick scan of the QR code are not a novelty here, and surprising as it may sound, yet, many Chinese consumers are clueless about the pilot e-CNY app let alone actually using it.
On the one hand, the e-CNY app is under development and hasn’t officially been on the mass roll-out yet (at this point, the e-CNY is piloted in 23 cities and regions in 15 provinces and provincial-level cities.
On the other hand, the two mobile payment giants are firmly holding their positions. WeChat, in particular, is considered China’s ‘super-app.’ Both platforms, WeChat and Alipay, have been used for already over 10 years, accumulating each more than billions of users. As of Q2 of 2022, WeChat reportedly had 1.3 billion users. They have transformed into much more than mere payment tools. Chinese consumers use these apps for a magnitude of functions ranging from social networking, doctor’s appointments, ordering food, purchasing travel and movie tickets up to checking their daily step count, and much more.
The People’s Bank of China (PBOC) has clearly accepted the fact that consumers are not going to easily let go of these two super apps, hence it has made an increased effort to spur the adoption of the e -CNY app through WeChat and Alipay’s support. In May 2021 and January 2022 respectively, both platforms activated e-CNY express payment option. With Alipay and WeChat having such а strong grip on the Chinese market, partnering with them was the only option for PBOC.
Hu Hao, a researcher at Beijing-based research institute Kandong said:
"As the two mobile payment giants, WeChat Pay and Alipay are expected to provide powerful support for the application and promotion of e-CNY through its express payment system.”
Since the beginning of this year, PBOC has started to include the e-CNY in its calculations of the amount of money circulating in the economy. According to the report the outstanding size of it was 13.61 billion yuan (US$2 billion) at the end of December 2022. The digital yuan was included in M0, the measure of 'physical money' circulating in the economy, and represented 0.13% of it.
e-CNY is regarded as the most widely adopted CBDC in the world due to its over 261 million e-CNY wallets. Most of these wallets are not in active use, and the average balance is just 3 RMB (around $0.5), yet in 2022 e-CNY documented about 14% transaction volume growth compared to the previous year.
Although for now, WeChat and AliPay payment and networking platforms are too deeply ingrained into the everyday life of a common Chinese citizen to be outplayed by e-CNY and the digital yuan seems to be slow to enter the existing payment market and infrastructure, CBDC is not only about the payments, and it could be a careful strategy of authorities to prevent any damage to the financial systems. e-CNY is the pioneer and unique case of CBDC rollout, and there is no similar case of this magnitude to compare. Moreover, if the e-yuan system is able to solidify itself at home, other countries will use this case study for their own CBDCs. We observe the developments in China with them and will keep our finger on the pulse of e-CNY adoption. Stay tuned for further news.