THE PIONEERING ROLE OF THE DIGITAL YUAN

by Alexandra Zoltai

E-CNY, OR DIGITAL YUAN, IS A CENTRALISED, CASH-LIKE DIGITAL CURRENCY USED PRIMARILY FOR RETAIL PAYMENTS IN CHINA. THE PEOPLE’S BANK OF CHINA (PBOC), THE CENTRAL BANK, HAS CONDUCTED LARGE-SCALE PILOT PROGRAMMES FOR THE DIGITAL YUAN IN SEVERAL CITIES IN RECENT YEARS. THE INTRODUCTION OF THE DIGITAL YUAN SERVES TWO DISTINCT BUT RELATED PURPOSES.

The first, longer-term goal is to create a digital currency that can compete with other digital currencies, such as Bitcoin while ensuring that the yuan remains the dominant currency in China. Unlike cryptocurrencies like Bitcoin, the digital yuan is issued directly by China’s central bank and does not rely on a blockchain. The value of the currency is the same as its analogue counterpart, the yuan, and for consumers, using the digital yuan is no different than using other mobile payment systems or credit cards.

The second, more immediate goal is to transform China’s current payment system by providing a cash-like digital payment method: accessible to all, inexpensive, reasonably anonymous, and encouraging competition among payment service providers. In the PBOC’s pilot programmes to date, the e-CNY wallet only requires a cell phone number.

The successful launch of e-CNY can accelerate the pace of currency digitalisation worldwide. If e-CNY catches on in China, it will prompt other central banks to redouble their efforts to develop their own digital currencies.

The author is a researcher at the Eurasia Center and the director of the Confucius Institute at the University of Szeged