China’s ambitious plan for a central bank digital currency (CBDC), the e-CNY or digital yuan, is facing an adoption test. While the government boasts of billions of dollars in enthusiastic deals and lawsuits in cities, a closer look reveals an obstacle: a lukewarm reception from the very people it is supposed to serve.
Digital Yuan: early adopters turn away
A recent report » by the South China Morning Post takes a cold look at the immediate success of e-CNY. State employees in some cities, who receive part of their salary in digital yuan, quickly convert it back to cash. The reasons? A lack of incentive and practicality.
Sammy Lin, an account manager at a Chinese state bank, said:
“There’s no point if I leave it there (…) there aren’t many places I can use it.”
This sentiment echoes concerns about limited use cases. Unlike established digital payment platforms like Alipay and WeChat Pay, the e-CNY does not appear to be widely adopted by merchants, both online and offline.
Privacy concerns cloud the picture
Added to this apprehension is the specter of government surveillance. China’s digital ecosystem is already closely monitored and citizens are wary of the potential for intrusive tracking with e-CNY.
“Paper money offers anonymity,” says Ye Dongyan, a researcher at the Cheung Kong Graduate School of Business in Beijing. “The lines between information tracking and security need to be more clarified.”
The government, however, maintains that e-CNY prioritizes privacy through “controllable anonymity.” This system, according to Yi Gang, former governor of the People’s Bank of China, protects small transactions while monitoring larger ones to prevent financial crimes.
But can this allay citizens’ concerns?
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Do the numbers tell a different story?
Despite the low usage reported by the first recipients, China presents a different narrative. Yi highlights that more than $250 billion in e-CNY transactions were completed as of July 2023.
This suggests some level of adoption, but the details remain unclear: is it organic growth or the result of government-led initiatives?
Encourage change
China is actively promoting e-CNY. Several cities have conducted trials, distributing millions of dollars in digital yuan subsidies and consumer vouchers. This approach aims to encourage people to experiment with the new currency and potentially discover its benefits.
The road ahead
The future of e-CNY remains uncertain. As the government pushes for wider adoption, user behavior suggests more is needed than just financial incentives. Addressing limited use cases and building trust around privacy are crucial steps.
China’s digital currency project could yet see widespread adoption, but for now it appears stuck in a conversion cycle – from digital yuan to cash.
Featured image from VCG via Getty Images, chart from TradingView
