The Beijing Olympics will not be the splashy launch China wanted for its digital currency

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.

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Beijing has put pressure on companies – including large Western companies such as McDonald’s (MCD) and Nike (OF) – to allow customers to use the digital yuan during the games. The digital version of the currency is one of only three payment options foreign athletes and others have at sports venues and the Olympic Village, apart from cash and Visa payments. And last year, Beijing said it would make it easier for foreigners to use the digital yuan during the Games by providing athletes with ski gloves and smart watches with built-in payment features and lifting the requirement to open a local bank account if they want to use the currency.
However, as the event approaches, these efforts may land with a bang. Beijing is preventing most fans from attending the Games and has constructed a comprehensive quarantine “bubble” to separate Olympians, officials, journalists and support staff from the rest of the city as fears of coronavirus outbreaks continue. Western lawmakers are also warning their athletes against using the digital yuan due to distrust of the Chinese government, including espionage problems.

“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.”

The digital yuan is one of only three payment options foreign athletes and others have at sports venues and the Olympic Village, apart from cash and Visa payments.

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.

“Launching the digital yuan for a big party like the Winter Olympics could showcase China’s latest fintech achievement for the world,” Li Xin, chief business manager at Bank of China’s (BACHF) digital yuan device, the state television company told earlier this month. The state-owned bank is the official banking partner of the Beijing Games.
Several factors make widespread adoption difficult. Authorities have created one of the most complex Covid quarantines ever attempted. Known officially as the “closed circuit system”, the restrictions will apply to about 11,000 people from around the world, shutting them off from the wider Chinese population.

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.

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Political tensions can also complicate the situation. Last July, three U.S. Republican senators called on the U.S. Olympic and Paralympic Committee to ban U.S. athletes from “receiving or using the digital yuan during the Beijing Olympics.” The committee did not respond publicly. But it has reportedly advised U.S. athletes to bring disposable phones or burner phones to the Olympics in China due to possible surveillance, the Wall Street Journal reported earlier this month. Several other countries, including the UK and Canada, have offered similar advice to their athletes, according to Reuters.

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 .

The digital yuan is available in 10 cities and regions, but experts cite a lack of incentives as a major reason for fluttering enthusiasm.

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.

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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.

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However, these companies may feel that they do not have much opportunity. China’s push for digital currency is linked to its legislative repression Big Tech. Ant group and Tencent (TCEHY) has been under intense control and were forced to either audit their companies or pay large fines as Beijing sought to limit their power.

“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.

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