Transactions involving China’s digital yuan surged to 1.8 trillion yuan ($249.33 billion) by the end of June, as reported by the country’s central bank governor, Yi Gang, at a recent lecture organised by the Monetary Authority of Singapore (MAS). The figure represents a substantial increase from just over 100 billion yuan recorded in August of the previous year.
The surge in transactions has solidified China’s position as a global leader among countries that are actively developing their own central bank digital currencies (CBDCs), which are digital tokens issued by central banks. Despite the progress, the adoption of the e-CNY, as the digital yuan is called, is still in its nascent stage, with most of its usage concentrated in domestic retail payments.
As of the end of June, the circulation of the e-CNY reached 16.5 billion yuan, while the total number of e-CNY transactions touched 950 million, with 120 million wallets being opened. Nevertheless, it is important to contextualise these numbers as e-CNY circulation currently accounts for only 0.16% of China’s M0 money supply, which refers to cash in circulation. Governor Yi Gang elaborated on this, stating that while the balance of e-CNY is relatively small, it supports a significant number of transactions, showcasing the high velocity and efficiency of the digital yuan.
The adoption of the digital yuan is still relatively low compared to China’s massive population of 1.4 billion. Up until now, the e-CNY has primarily been utilised for domestic retail payments, with only a few trials being conducted in regions like Hong Kong. One such recent trial was initiated by the Bank of China Hong Kong, which launched a cross-border payment scheme for its customers at selected retail stores in Hong Kong. The trial aims to promote the cross-border applications of the digital yuan and represents the third cross-border trial of the e-CNY in Hong Kong. In previous trials, the BOCHK encouraged customers to set up a BOC e-CNY wallet by offering them $14 (100 yuan) to be used at the Hong Kong supermarket chain U Select.
To expand the use cases of the digital yuan, the central bank integrated smart contract functionality into the system in January. This move allowed for greater versatility and potential applications of the e-CNY.
While the recent milestone of $250 billion in e-CNY transactions is a commendable achievement, it still falls significantly short of the transaction value processed by some of the world’s largest public blockchains. For instance, Bitcoin alone processed $8.2 trillion worth of transactions in 2022, according to various reports. This highlights the potential for further growth and adoption of the digital yuan in the future.
The digital yuan’s impressive momentum in transactions and circulation showcases China’s commitment to exploring and implementing innovative digital payment solutions.
The PBOC’s implementation of the e-CNY revolves around two distinct yet interconnected objectives. The primary and far-reaching goal is to establish an innovative digital currency capable of rivalling other cryptocurrencies like Bitcoin, stablecoins, and central bank digital currencies (CBDCs). Simultaneously, it seeks to safeguard the renminbi’s supremacy as the prevailing currency within China. The secondary but more urgent aim is to revolutionise China’s existing payment infrastructure through the provision of a cash-equivalent digital payment solution. This novel method aims to ensure inclusivity for all users, maintain affordability, offer a certain level of anonymity, and foster healthy competition among various payment service providers.
As the adoption of the e-CNY continues to grow, it is poised to play a pivotal role in reshaping China’s financial landscape and exerting influence on the global digital currency arena. China’s pioneering efforts in developing a central bank digital currency may serve as a catalyst, inspiring other nations to accelerate their own initiatives in this field. With technology propelling financial advancements forward, the emergence of China’s digital yuan represents a noteworthy stride toward a more digitised and interconnected global economy, holding the potential to revolutionise traditional financial systems and redefine the future of money.
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