China: Digital yuan wallet sees massive adoption. But something’s amiss

Namrata Shukla
China digital yuan
Source: Pixabay

The much-awaited digital yuan, China’s digital currency, has made an appearance on app stores with pomp. The online wallet for the central bank digital currency was also noting mass adoption in the two weeks of its public launch, but something’s amiss. Despite large-scale adoption, its actual use in transactions has been far less, as per reports.

China new CBDC challenge

The People’s Bank of China [PBoC] has been actively testing the digital currency, dubbed e-CNY. The time sensitivity of the issue is the central bank’s vision to raise awareness about the e-CNY during the time of the Winter Olympics that begin from 4th February. It has made steady progress with trials carried out in dozens of regions across the country since 2020.

The e-CNY wallet application on mobile phone app stores was launched on 4th January by the PBoC. This created a buzz among the public as it became the most downloaded free app on China’s Apple iOS app store on 8th January. It remained in this spot for five consecutive days and has been downloaded over 2.5 million times, as per research consultancy Sensor Tower.

Earlier, these wallets could only be opened through selected banks.

Even though the digital currency debuted on the app stores, its use was limited to 10 major “pilot” cities. This barrier was also met with competition from Ant Group’s Alipay and Tencent’s WeChat Pay that remained popular for online payments.

A student in Shanghai downloaded the wallet but explained his woe,

“There are still not many application scenarios for e-CNY in daily life, and many merchants don’t accept it.”

He still relied upon Alipay and WeChat Pay for payments.

Could “Push by the government” help?

The official data confirmed this discrepancy between massive downloads and bare use. Reports suggested during July-October 2021, the e-CNY wallets increased nearly seven-fold, to 140 million. This was equivalent to one-tenth of China’s population.

At the same time, the cumulative transaction value noted only an 80% growth to 62 billion yuan [$9.77 billion]. Whereas, its competition Alipay noted a monthly payment transaction value of 10 trillion yuan, as Ant revealed in 2020.

However, the authorities have planned the means of raising awareness and use of the new digital currency. The users will use the e-CNY to pay for water, electricity, and medical bills, as per G.Bin Zhai, senior economist at PwC China.

He noted,

“A small push by the government will make a big difference.”

Upon launch, the e-CNY could be one of the first sovereign digital currencies putting China ahead in the CBDC race.