China is already on the verge of staying a cashless society, but the vast majority of these electronic transactions take place on privately owned apps, outside the immediate competence of the state. An official yuan would change that and give Beijing an unprecedented amount of information on what people are spending their money on and where.
The world’s second-largest economy has been testing the digital yuan in Chinese cities for the past two years as it prepares for a national rollout that could put China ahead of Europe and the US in the global race to develop a state-subsidized digital currency.
The timeline for the nationwide launch has not yet been determined, but Beijing almost certainly intended the Olympic Games to be an important milestone on the road to widespread use.
“The Olympics would have been the first real chance for both tourists and Chinese nationals to get acquainted with the digital yuan, but that door slammed when the Chinese government decided to severely limit the number of Olympic spectators,” says Craig Singleton, senior China fellow at the Foundation for Defense of Democracies, a DC-based research institute.
“This decision alone, more than anything else, is likely to further delay the mass adoption of the digital currency.”
A subdued international debut
Chinese companies and officials have hailed the Games as an opportunity for the digital yuan in recent weeks, though it has become clear that attendance will be minimal.
Anyone – Chinese or foreign visitors – who is not part of that system is precluded from participating in the games at all, which further limits the scope of the performance.
Even if many of the people attending the event use the digital yuan, “it will not make a significant dent in the overall level of transaction,” said Scott Kennedy, senior adviser and chairman of Chinese Business and Economics at the Center for Strategic and International Studies .
Fights for traction
The digital yuan is already struggling to gain ground in China. Transactions using the currency amounted to only $ 8.37 billion in the second half of 2021, equivalent to $ 1.4 billion per month.
Although it marks some progress after two years of trial, it is still far from a serious challenge for privately owned digital payment apps.
Ant Group, for example, revealed in 2020 stock market reports that its Alipay app processed $ 1.6 trillion on average each month – more than a thousand times the digital yuan’s monthly transaction volume.
After first restricting the use of digital yuan purses to winners of a lucky draw, the Chinese government has made it easier for the public to try out the virtual money. Earlier this year, for example, the People’s Bank of China released a wallet app on Apple and Android stores that can be used in 10 cities and regions testing the currency, along with the Olympic venues. This pilot app is now available to everyone in these areas, not just the lottery winners.
The central bank has announced rising numbers among its trial users last year as a sign of the success of the digital yuan. By the end of December, the app had been downloaded by 261 million people, or 19% of China’s population, according to central bank data.
But there are also still barriers to spending the money. Outside of the Olympic exemption for foreigners, people who want to trade in digital yuan must download and sign up for the central bank app and then add money from their accounts at one of the designated Chinese banks.
The currency can also not be used outside the 10 cities and regions that test it, along with the participating Olympic venues.
Consumers seem to have an “unwillingness to embrace” currency right now, according to Frank Xie, a professor at the University of South Carolina Aiken who is studying Chinese business and economics.
Experts cited the lack of incentives as a major reason for this lack of enthusiasm.
“The ecosystems that have been built for a decade now around the big technology companies are unmatched in terms of networking and convenience,” said Martin Chorzempa, a senior fellow focusing on Chinese financial innovation and technology at the Peterson Institute for International Economics. After all, industry leaders Alipay and WeChat Pay already have it hundreds of millions of users who are familiar with their services.
“The payment experience does not tend to strike most users as different or better than what is already offered,” he added.
Xie also suspected that concerns about loss of privacy could be a factor, adding that “even ordinary citizens” have come to realize the scope of government power.
Changing consumption patterns
The government has some options to pressure consumers to change their consumption patterns, according to Singleton of the Foundation for the Defense of Democracies.
“Overtime, it is possible that people could see an increased use of the digital yuan to pay for certain expenses, such as utility bills, transportation or other government-administered bills, simply because the government could force these changes on consumers,” he said.
Analysts have also raised the possibility that the government could request that privately owned apps actively promote the state-sponsored yuan. It’s already starting to happen: Alipay started tried digital yuan payments last year, and Tencent said earlier this month that they would also start supporting the digital yuan in its WeChat Pay wallet.
“In effect, you are asking these providers to potentially cannibalize their own systems by allowing customers to use the digital yuan instead of their own existing payment options,” said Kimmo Soramäki, founder and CEO of London-based analytics firm Financial Network Analytics.
“The development of future versions of AliPay and WeChatPay [is] likely to be prevented, which in turn will limit the power of these large technology companies, “said Singleton, adding that the government hopes its regulatory barriers will allow the digital yuan to” overtake these other payment systems. “
But Beijing is ultimately securing a broader introduction of its state-sponsored digital currency, which appears to be at least one security: the Beijing Winter Olympics do not appear to be the scene of digital yuan bouncing rights that authorities might have hoped on.