Caixin
Nov 10, 2021 06:32 AM
FINANCE

China to Improve Links Between Digital Yuan and Payment Apps

China’s digital yuan has recorded total transactions topping 62 billion yuan in trials rolled out in 10 cities
China’s digital yuan has recorded total transactions topping 62 billion yuan in trials rolled out in 10 cities

China’s central bank will improve connectivity between the digital yuan and existing payment apps as the country steps up efforts to promote its official virtual currency, People’s Bank of China Governor Yi Gang said.

The central bank will “increase (the digital yuan’s) interoperability with existing payment tools,” and “improve the currency’s ecosystem,” Yi said Tuesday during a virtual panel organized by the Bank of Finland Institute for Emerging Economies.

“Efforts will be made to establish a management model for the virtual currency modeled on how cash and bank accounts are managed and will improve its efficiency, privacy protection and anti-counterfeiting functions,” Yi said.

China’s central bank has been testing the digital yuan, known as e-CNY, in several regions since late 2019 and is preparing for a broader trial of the digital currency at the 2022 Beijing Winter Olympics in February.

As of Oct. 8, pilot scenarios using the digital yuan exceeded 3.5 million, and more than 123 million personal wallets have been opened with transaction volume totaling 56 billion yuan ($8.76 billion), according to the central bank.

China’s digital yuan has recorded total transactions topping 62 billion yuan in trials rolled out in 10 cities, Mu Changchun, head of the PBOC’s Digital Currency Institute said last month.

The PBOC has partnered with tech giants including Ant Group and JD.com Inc. to promote the digital currency, and users in pilot zones can access their e-CNY wallet through Ant’s Alipay app.

Chinese people are increasingly relying on mobile payments in their daily lives. In 2020, mobile payment transactions in China increased by 25%, with a penetration rate of 86%, according to Yi. While mobile payments greatly helped facilitate people's daily lives, the services are mainly provided by the private sector, brewing risks of market fragmentation and privacy infringement, Yi said.

Central bank digital currencies allow central banks to continue to provide a credible and secure means of payment in the digital era while improving efficiency and integrity of the payment system, the PBOC governor said.

For China, the main purpose of developing the digital yuan is to meet the need for domestic retail payments and improve financial inclusion, Yi said.

The central bank digital currency’s impact on monetary policy and financial stability mainly depends on the design, Yi said. If it is designed more like cash, the impact would be relatively limited. But if it is given the attributes of deposits and other financial assets, it may affect the efficiency of monetary policy transmission.

The PBOC has explored ways to reduce the negative impact, including positioning the e-CNY as M0, or cash, bearing no interest to reduce competition with banks for deposits, Yi said.

The e-CNY focuses on domestic retail payment at this stage, and the central bank will continue to supply cash as long as there is demand, Yi said.

Bloomberg contributed to this story.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (hello@caixn.com)

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