The Digital Yuan Chronicles: Exploring Future Insights and Promising Prospects

The Atlantic CBDC tracker reports 11 launched and 18 pilots. The Digital yuan is still in pilot phase, but we care about it more than any other CBDC for obvious reasons.

There is no doubt that adoption is key and Nigeria`s challenges to get people to use the e-Naira, is a testament to that.

So, what can we learn from the rollout strategy of this CBDC? Let’s look at the Digital yuan timeline, the choices made, and the imminent plans.

China clearly holds the CBDC early pioneer award as they started exploring the potential of a Central Bank Digital Currency as early as 2014. This is the same year that in the West, Apple launched ApplePay in the US, Lending Club IPO`d on NYSE, the UK launched Innovate Finance, Adyen raised $266million, and Ether went on sale on Ethereum.org and could be bought with Bitcoin.

Already Alipay established in Hangzhou (10yrs old in 2014), had overtaken PayPal as the world’s largest digital / mobile payment platform and had launched the infamous Yu’E Bao investment product the previous year (2013). In just ten months the Yu’E Bao money market fund had raised $90 billion (in 2018 it became the world`s largest money market fund with $251 billion AUM). 2014 was also the year that Alipay was accepted by Beijing taxi drivers, and several large-scale retail companies and chain convenience store companies. By 2013, Alipay had gained around 300 million users.

WeChat Pay was launched only in 2013 by WeChat (already 3yrs old and with 500 million Monthly Active users). WeChat of course, had an established competitor, Alipay. However, 2014 has gone down in history as the year of the innovative WeChat Red Envelope, which proved to be a major booster for the adoption of WeChat Pay.

The Digital Yuan Chronicles

• The first pilots of the e-CNY started shyly in the Fall of 2019 in Changshu. Government employees received their transit subsidies in digital yuan. Changshu is a city in the southern part of Jiangsu province.
• The following year (2020) Changshu and several other Chinese cities started paying salaries of government employees in Digital yuan.
• In the fall of 2020, Shenzhen was chosen along with another 3 cities for `an airdrop` of the digital yuan. The city of Shenzhen sent 10 million yuan worth ($1.47 million) of digital currency to 50,000 randomly selected residents who applied for it. The Digital yuan was sent through mobile “red envelopes,” the popular way of digitally gifting money in red packets (by WeChat’s e-wallet). Shenzhen is a city located in Guangdong province, situated just north of Hong Kong.
• This expansion continued in 2021 and reached cities in Hainan province and Shanghai.
• In the Spring of 2021, it was reported that Alibaba’s online grocery service and food delivery units, including ele.me food delivery system, Tmall supermarket, and Hema grocery stores, were included in the digital yuan pilot program
• In June 2021 Beijing started giving away a total of 40 million digital yuan, worth $6.2 million.
• The digital yuan made its international debut at the in early 2022. It was introduced, with athletes and visitors being able to use the digital currency to make transactions through a wallet app or physical card, or wristbands. According to reports, it was also tested in more than 400,000 “scenes” involving real purchases of goods and services before the Olympics, with more than 12 million individual users and 1.3 million company users in the capital registering on the app.
• In April 2022, The digital yuan was trialed in several Chinese cities, with the government employees as well as staff at state-owned companies and public institutions again in the city of Changshu.

Media reported that by July 2022, wallets for the Digital Yuan were rolled out in more than 23 cities accounting for over one-fifth of the population but most seem empty, and adoption is not there yet.

• In June 2022, Changshu city in the Jiangsu province, started using the digital yuan to make overtime payments worth 2.5 million yuan (US$363,000) to around 4,900 state enterprise employees.
• In September 2022 (more than one year after Alibaba) Tencent-owned WeChat also announced it would begin rolling out the e-CNY as a payment option on its platform.

Unfolding this year

• April 2023: Civil servants and other public sector workers in the city in Jiangsu will receive their salaries in e-CNY in a direct deposit fashion.
• Xuzhou, another Jiangsu city, will start paying with the e-CNY for services and storage charges for goods carried by the cross-border trains with a plan to extend its usage to paying for taxes and utility services in the city. Xuzhou, is the starting point of many Europe-bound freight trains from China . The city has 18 regular cross-border railway lines to 21 countries in Europe and Asia.
• May 2023: The first SME loans with e-CNY have been piloted in the city of Changsha in the Hunan province. This is a milestone as the loan funds settle in real time, processing fees are negligible, and there is a transparent digital footprint of the credit transaction.
• September 2023: The e-CNY will be piloted also at the annual China-Asean Expo in September held at the Guangxi Zhuang region, in business dealings within the region’s free-trade zones and in border trade. The Guangxi Zhuang region is a special case because it is an autonomous region, bordering Vietnam.

The e-CNY adoption in China remains in pilot phase. Retail adoption is slow as there are no major incentives to pay salaries in the private sector in digital yuan yet. Airdrops will continue as they are a cost effective to market the digital yuan. For the needle to move, we need to see more SME lending in e-CNY because that will find its way into the economy and have a multiplier effect. Although adoption during expos and major sport events may help in branding, the penetration in the real economy will come from trade. So, watch lending and trade.

The fact that BNP Paribas China is launching an e-CNY management system for its corporate clients, is not talked about enough. This is more important than the flashy Winter Olympic e-CNY pilots in 400,000 scenes. HSBC subsidiary Hang Seng is also offering institutional clients e-CNY management services.

In 2023 January report, the PBOC reported that only $2 billion worth of digital yuan was in circulation as of December 2022, accounting for only 0.13% of the $1.51 Trillion in reserves held by the bank.

Yes, the quantity is negligible but the corporate lending to local SMEs and e-CNY management services for corporate clients involved in cross-border trade, is where the adoption will happen. This coming October it will be 4yrs since the pilots started. There is no quick win as we all know. Give it another 3 yrs to reach the 6 to 7 yr timeline.

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