Experiments with the digital yuan have yielded disappointing results, according to a report citing the former head of research at China’s central bank. The new form of national currency has not brought any benefits to the banks and should extend beyond its use as a substitute for cash, the banker believes.
Ordinary people are used to cash and cards, notes a former PBOC director.
The use of China’s central bank digital currency (CBDC) has been “weak, very inactive“, according to Xie Ping, former director general of research at the People’s Bank of China (PBOC). Ping made the observation during a conference dedicated to the digital economy.
“The cumulative circulation of the digital yuan during the two trial years was only 100 billion yuan” ($14 billion), he detailed, quoted by financial media Caixin and Reuters. According to him, the use of the digital yuan should be expanded.
“The results are not ideal”, Xie concluded during the forum organized by Tsinghua University. He pointed out that “what needs to change is that the digital yuan only works as a substitute for cash and only for consumption.“
The payment market structure formed by cash, bank cards and third-party payment platforms currently meets the needs of daily consumption in China. “The common people are used to it, and it is difficult to change it“, he noted.
China has been at the forefront of the race to develop CBDCs by working to promote the digital yuan through several red envelope campaigns, giving away e-CNY to increase its use, and expanding the geographic scope of the pilot project to new cities and regions.
The authorities have also tried to expand use cases for the digital version of the renminbi, with the latest examples being the introduction of digital yuan payments in public transport systems in Ningbo and Guangzhou. In September, the PBOC called for more of these use cases and called for deeper integration of its new currency with electronic payment providers.
According to Xie Ping, digital yuan-related business has no synergistic effect and no commercial advantage for banks, while third-party payment systems such as Alipay offer a number of more attractive features such as investment, insurance and consumer loans.
This is why the former central bank official believes that the use of the digital yuan can be expanded by allowing individuals to buy financial products with the state-backed coin, for example, and connecting it to more traditional payment platforms to create new opportunities for to use it for consumption.