China’s digital yuan is little used, says former central bank official

Trials of the digital yuan have produced disappointing results, according to a report citing the former head of research at China’s central bank. The new form of national currency has brought no benefits to banks and should expand beyond its use as a substitute for cash, the banker believes.

Ordinary people are used to cash and cards, notes a former PBOC executive.

The use of China’s central bank digital currency (CBDC) has been “low, very inactive“, according to Xie Ping, former director general of research at the People’s Bank of China (PBOC). Ping made the observation at a conference on digital finance.

“The cumulative circulation of digital yuan in the two years of testing was only 100 billion yuan” ($14 billion), he detailed, as quoted by the financial media Caixin and Reuters. According to him, the application of the digital yuan must be expanded.

“The results are not ideal“, concluded Xie at the forum organized by Tsinghua University. He stressed that “what needs to change is that the digital yuan only acts as a substitute for cash and only for consumption.“

The payment market structure formed by cash, bank cards and third-party payment platforms currently satisfies 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 CBDC development race by working to promote the digital yuan through several red envelope campaigns, giving away e-CNY to boost its use, and expanding the geographic scope of the pilot to new cities and regions.

Authorities have also been trying to expand use cases for the digital version of the renminbi, with the latest examples being the introduction of digital yuan payments in the public transportation systems of Ningbo and Guangzhou. In September, the PBOC called for more of these use cases and for further integration of its new currency with electronic payment providers.

According to Xie Ping, digital yuan business has no synergistic effect and no commercial benefit for banks, while third-party payment systems such as Alipay offer a range of more attractive functions such as investment, insurance and consumer loans.

For this reason, the former central bank official believes that the use of the digital yuan can be expanded by allowing individuals to purchase financial products with the government-backed coin, for example, and by connecting it to more traditional payment platforms to create new opportunities to use it for consumption.