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The Chinese government designed the e-CNY as a digital payment instrument that can serve as a substitute for the fiat yuan in regular day-to-day activities.
Xie Ping, the former Director General of Research at the People’s Bank of China (PBoC) has expressed dissatisfaction about the progress made thus far by the country’s Central Bank Digital Currency (CBDC) dubbed e-CNY or Digital Renminbi. According to a report by a local news channel, Caixin, Ping faults the distribution of the e-CNY which he said is limited to just a few billion dollars.
“The cumulative circulation of the digital yuan in the two years of the trial has been only 100 billion yuan ($14 billion),” he said while speaking at a conference organized by Tsinghua University. He added that the reported figure showed that the Digital Renminbi’s “usage has been low, highly inactive.”
China remained at the forefront of the Central Bank Digital Currency race and was the first major advanced economy to launch retail trials involving the new form of money. Over the past 2 years, pilot tests have been conducted in its main cities including Beijing, Shanghai, Shenzhen, and Suzhou and this has featured both state-owned banks as well as private companies in the country.
To the world, the embrace of the e-CNY was impressive and the PBoC even extended the pilot test to the 2022 Winter Olympics hosted in Beijing earlier in the year. Beyond the media frenzy, Xie Ping believes the new form of money is not meeting the goals for which it was created and that the results from the pilot tests are not ideal.
The Chinese government designed the e-CNY as a digital payment instrument that can serve as a substitute for the fiat Yuan in regular day-to-day activities. To Ping, the limited functions of the e-CNY are exactly the reasons why its adoption will be limited if not urgently addressed.
PBoC Advised Expanding the Utility of the e-CNY
Ping highlighted that the dominance of existing fintech firms such as Alibaba-backed Alipay and Tencent-backed WeChat Pay will make it difficult for the Chinese masses to adjust to the e-CNY. He said the existing payment models currently satisfy the daily need of the citizens and as such, finds no new challenges that the CBDC was introduced to solve.
“Cash, bank cards, and China’s third-party payment mechanisms have formed a payment market structure that has met needs for daily consumption,” he said. “The common people are used to it, and changing it is difficult.”
“What needs to change is the digital yuan acting only as a substitute for cash and only for consumption,” Ping added.
He advised the PBoC to expand the utility of the e-CNY such that it can be used to purchase other financial instruments, and deployed in investments as much as Alipay and other independent players.
While it is unlikely that the PBoC heed the advice from Ping with respect to the e-CNY, the apex bank is optimistic that the narrative will change when the CBDC is finally launched for the public to use.