Digital yuan: use of coins under scrutiny

A sign indicating the digital yuan, also referred to as e-CNY, is pictured on a vending machine at a subway station in Shanghai, China.

SHANGHAI Reuters -- China's digital currency has debuted with fanfare on app stores, with online wallets for the electronic currency seeing mass adoption in the two weeks since its public launch, yet its actual use in transactions has been far less impressive.

The People's Bank of China PBOC is ramping up testing of the digital currency, dubbed e-CNY, ahead of the Beijing Winter Olympics next month. But the use of e-CNY is limited to 10 major pilot cities, hampered by people's preference for Ant Group's Alipay and Tencent's WeChat Pay, which dominates China's online payments.

The PBOC is at the forefront of a global race to develop central bank digital currencies, and is one of the first to be launched by the e-CNY.

PBOC released its e-CNY wallet application on mobile app stores on January 4, triggering intense public interest.

The digital wallet was the most downloaded free app on the Chinese iOS app store on Jan. 8, staying in the spot for five consecutive days and has been downloaded more than 2.5 million times, according to research consultancy Sensor Tower. Previously, e-CNY wallets could only be opened via select banks.

Howard Mao, a university student in Shanghai, said he has downloaded the wallet but hardly uses the electronic money.

There are still not many application scenarios for e-CNY in daily life, and many merchants don't accept it, said Mao, who still relies on Alipay and WeChat Pay.

Official data shows the discrepancy between busy wallet downloads and lukewarm acceptance.

During July-October last year, the number of individual e-CNY wallets nearly jumped seven-fold, to 140 million, equivalent to one-tenth of China's population.

The cumulative transaction value grew 80% to 62 billion yuan $9.77 billion Alipay's monthly payment transaction value averaged nearly 10 trillion yuan, Ant said in 2020.

According to G. Bin Zhao, senior economist at PwC China, it takes time for people to accept the e-CNY, given their entrenched payment habits.

He said that authorities have a lot of ways to promote mass adoption, such as prioritizing the use of e-CNY in the payment of water, electricity and medical bills.

A little push by the government will make a big difference. The e-CNY is currently accepted by internet giants, including JD.com, Meituan and Trip.com. It can also be used online to buy plane tickets or pay mobile phone bills. In November, a Chinese central banker said 1.55 million merchants could accept payments using e-CNY wallets, including utilities and catering.

According to Zou Chuanwei, chief economist of WanxiangBlockchain, the development of digital yuan has reached critical mass.

The application scenarios of e-CNY will be expanded to include financial asset transactions, trade and cross-border payment, and the room for innovation is huge, Zou said.