Expanding the Use of China’s e-CNY

China’s digital currency, the e-CNY, is the world’s largest, longest running and most ambitious Central Bank Digital Currency pilot. Its scale and ambition are huge, as shown by the Governor of the People’s Bank of China (PBOC) who, speaking at a Monetary Authority of Singapore conference, revealed that the e-CNY has had over $250 billion in transactions in its first 18 months since launch.

This was achieved through 950 million transactions from 120 million wallets. It may only account for two-tenths of one percent of M0, but steady progress is being made. JD.com Inc, an e-commerce giant in China, reported that it saw a 216% year-on-year increase in e-CNY users during June’s ‘618’ shopping festival. It has seen a 254% increase year-on-year in the number of transactions.

Almost every week there are press reports of new initiatives to promote the e-CNY and work to increase its functionality. Added to these have been an increasing number of stories about efforts to internationalise the e-CNY. Clearly these are working since it is not just Hong Kong that has projects to bring the e-CNY into its mainstream commercial activity.

While each individual story presented here may be local or limited in scale, the direction of travel and the range of activity is interesting. Clearly moving the e-CNY to a point where citizens prefer to pay with it rather than bank money through Alipay, WeChat Pay etc. is proving hard, but PBOC’s programme appears unrelenting.

Steps to encourage day to day use of the e-CNY

Transport: The city of Jinan has introduced the ability to pay with e-CNY on buses. A pilot was carried out on two bus lines before rollout to the entire network. If passengers pay with e-CNY, they get a discount on the fare for two journeys each day and a maximum of six discounted rides per month. In Changshu city civil servant salaries are being paid solely in e-CNY.

Qingdao Metro launched the country’s first offline CBDC transit ticketing pilot in June.

Social security cards: It is reported that the PBOC wants to add support for payments made using the e-CNY to physical state-issued social security cards. Social security cards act as identify cards and contain information records. They can already be used to make payments for urban transport and medical fees. PBOC now wants these to be able to make e-CNY payments.

The Bank of China has developed a social security card which can load the e-CNY hardware wallet solution. The card remains as a physical card but now formats such as bracelets and portable tags are being explored. The project is looking at a range of user cases including consumption, elderly care, bill payment, transportation and treatment-receiving scenarios.

Offline payments: Bank of China is working with China Unicom and China Telecom on a SIM card-based payment function for the e-CNY. A super SIM card, which contains the payment function, links with the e-CNY software. The aim is to enable transactions even if there is no internet access or phone battery power, and this is now being piloted.

Super SIM cards, which have been in use since 2016, have more memory capacity than ordinary SIMs and so can store more data.

Increasing cross-border trade

Singapore: DBS, based in Singapore, has become the first foreign bank to embed the e-CNY into its merchant payments system. The solution allows payment collection and settlement services for Chinese merchants.

Bulk commodity trading: The Shanghai Clearing House has launched the e-CNY for use in clearing and settlement service for bulk commodity trading. No fees will be charged for digital currency clearing and settlement services at this stage. The claim is that cross-border settlement with the e-CNY will be more secure, faster, more efficient and cost-effective.

China is the world’s biggest buyer of a number of commodities. This move will help it internationalise its currency.

BNP Paribas: BNP Paribas is reported to have entered a strategic partnership with the Bank of China so that its corporate clients can use the e-CNY for payments.

Belt and Road: Xuzhou is a city on the border of China on its Belt and Road route to Europe. It is promoting the e-CNY use in cross-border trade with the aim of streamlining transactions and enhancing trade efficiency.

Tourist payments: In the tourist destination of Sanya, an ATM that issues the e-CNY has been introduced. Without a Chinese bank account, it has not been possible to use Alipay or WeChat Pay, although prepaid cards have been an option. This solution aims to give visitors access to China’s local mobile payments ecosystem.

Up to 20 currencies can be deposited and the ATM issues a physical card loaded with e-CNY in return. The card allows users to top up the card, check balances, see transaction records and to tap and go. It is programmed with eight languages. It was developed by a Bank of China. 11 banks are authorised to handle e-CNY. Using the ATMS allows tourists to avoid having to download a separate app.