As digital yuan hype fades, China must find fresh institutional use cases

Quick Take

  • The hype behind China’s CBDC appears to have slowed compared with early last year, when the government intended to flaunt the technology ahead of the Winter Olympics.
  • Business-to-business and institutional adoption may offer a boost for wider usage and experimentation of the e-CNY in pilot regions across China, experts say.

Earlier last year, China’s e-CNY was all the rage, with central banks, think tanks, journalists and politicians around the world closely watching the implications of the digital yuan pilots.

The People’s Bank of China (PBOC), the central bank, had been fervently testing the e-CNY and rolled out a pilot app in January 2022. Discussions and news surrounding what’s considered the world’s most advanced CBDC reached a peak when the country flexed its digital currency muscle at the Beijing Winter Olympics the following month. By the end of the year, data from the PBOC showed the value of the CBDC in circulation reached 13.61 billion yuan ($2 billion).

And yet the hype around it has largely vanished.

Richard Turrin, a Shanghai-based fintech consultant, said there’s less news about e-CNY compared to two years ago because the PBOC is now doing the “hard or dirty work,” which is “fundamentally less newsworthy” than the launch of pilots.

“It takes a lot more to build this ubiquitous national digital currency than it does to launch a cryptocurrency, which you turn on overnight, because you have to make sure it works first time and every time for every user,” Turrin added.

Facing new challenges

Youwei Yang, chief economist of Bit Mining, agreed that the e-CNY hype has faded “compared to the initial launch of the pilot program as it faces some challenges.”

Key among those challenges in testing the e-CNY include privacy concerns, user habit and interoperability with existing payment systems such as Ant Group’s Alipay and Tencent’s WeChat Pay, Yang added. “Addressing these challenges is crucial for expanding the use cases, building trust and driving wider adoption of e-CNY in the future.”

Since the inception of the digital yuan pilots in late 2019, the PBOC has expanded its digital yuan trial to at least 26 locations in 17 provincial-level cities and regions, including Beijing, Shanghai, Shenzhen and Suzhou, state media Xinhua reported in April.

While the hype surrounding the e-CNY may have died down, Matteo Giovannini, a senior finance manager at Industrial and Commercial Bank of China (ICBC), China’s largest state-owned commercial bank by assets, said that momentum has “not completely vanished,” adding that “probably right now it is not on top of mind of the central bank.”

“Despite persistent low adoption rates, the e-CNY is by far the world’s largest CBDC pilot in terms of the amount of currency in circulation and number of users,” Giovannini said.

More institutional participation

Business-to-business promotion may be the key focus area for the PBOC moving forward, said Stanley Chao, managing director of U.S.-based business strategy firm All In Consulting. 

“The PBOC tried to push and market the e-CNY from a retail perspective asking consumers to buy from stores using e-CNY,” Chao, who often works with Chinese businesses, said. “That has somewhat backfired, and I think we'll see the PBOC now marketing the e-CNY from the business-to-business perspective as well as pushing banks to possibly pay salaries via the e-CNY, thereby compelling more retail to accept the digital currency.”

Earlier this month, DBS Bank launched an e-CNY initiative that allows corporate clients to receive payme