FX Viewpoint | e-CNY: Taking shape | Article – HSBC VisionGo
- The rollout of the “e-CNY” is accelerating, with 70m transactions completed and the scope of trials expanded
- It is mostly for domestic retail purposes for now, but cross-border trials and testing a global initiative are also in focus
- A clear point of focus is whether there could be a formal launch close to the Beijing Winter Olympics in 2022
The introduction of the e-CNY is mainly motivated by the rapid development of the digital economy and electronic payments, among other things
China’s digital fiat currency of the RMB (hereinafter referred to as “e-CNY”) is on a roll. On 16 July 2021, the People’s Bank of China (PBOC) published a white paper, stating its official stance on the e-CNY, along with explaining the background, motivation, definition, design framework, among other things. In the paper, the central bank says the introduction of the e-CNY is motivated by China’s transition towards a digital economy, the decline in the use of cash, and the rapid rise of cryptocurrencies, as well as global central banks’ central bank digital currency (CBDC) developments.
The e-CNY will co-exist with physical RMB, with the same legal status and economic value
The official definition of the e-CNY
The e-CNY is legal tender, issued by the PBOC, and is non-interest accruing. As a retail-type CBDC, the e-CNY aims at partial replacement of cash in circulation (M0). It runs on a centralised two-tier system with the central bank (Tier 1) issuing the e-CNY and its authorised operators (Tier 2), such as commercial banks and licensed non-bank payment institutions, taking the lead in opening e-wallets (the medium of e-CNY) and providing e-CNY circulation services for end-users (i.e., individuals and companies).
The PBOC has launched many e-CNY pilot programmes under different scenarios, involving real users
The latest e-CNY experiments and trials
In the white paper, the PBOC says it has basically completed the research and development of the design and function of the e-CNY. As of 30 June 2021, over 20.9m personal e-wallets and 3.5m corporate e-wallets have been opened, with more than 70.7m transactions, amounting to RMB34.5bn, having been conducted in 1.3m scenarios, such as utility payments, catering services, and transportation, testing both offline and online transactions.
Programmability, an important, feature with growing popularity, is also incorporated in the e-CNY
More recently, the programmability of the e-CNY (i.e., deploying smart contracts that automatically execute transactions based on pre-defined criteria) has been tested. In an ongoing trial in Chengdu, 100,000 residents have been given an e-CNY allowance that is pre-programmed to link with public transportation to facilitate China’s carbon neutrality target (The Block, 2 July 2021). This feature is gradually gaining popularity among global central banks, as it can help with better targeted monetary and credit easing/spending programmes, and anti-money laundering measures.
The e-CNY will mainly serve domestic retail payment demands for now, but cross-border trials would be in focus
Going forward, we believe even wider domestic trials should be expected, broadening the number of participants and potential targeted uses (i.e. smart contracts). A clear point of focus is whether there could be a formal launch close to the Beijing Winter Olympics (4-20 February 2022).
Technically, the e-CNY can be used for cross-border transactions, but it will mainly be used for domestic retail purposes for now. Still, the central bank will explore cross-border trials and has been working closely with the Hong Kong Monetary Authority and the Monetary Authority of Macau, and also has joined a global central bank digital currency initiative called the Multiple CBDC Bridge, which is being led by the Bank for International Settlements.
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This report is dated as at 06 August 2021.
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