Central bank digital currency Why is a low usage of e-CNY in China
China introduced its central bank digital currency (CBDC), also known as e-CNY a few years ago. They implemented it in phases in several cities to test the system. 

They launched the e-CNY for tourists in the Beijing Winter Olympics in January 2022. 

There was little report of the usage of the e-CNY. I suspect that the usage is quite low. 

Earlier, I thought that the low take-up was due to the use of blockchain technology. I consider that this technology was unsuitable for a retail payment system.

I learned recently that the e-CNY does not use blockchain technology. It uses a central database, similar to the private payment platforms, such as AliPay and WePay. 

Why is there a low usage of e-CNY in China?

I suspect that there is really no need for a new platform when the existing private digital payment platforms are already well used. 

This report, stated that 64% of the overall population use mobile phone to make payment accounting for 80% of their monthly expenditure in the larger cities. 

As the private payment networks are already well established, it will be costly for the central bank to set up a separate network for payment of e-CNY. It will also be confusing to the consumers and merchants.

In my view, a better approach is for the state regulator to develop the existing digital payment infrastructure in the following areas:

1. Allow the existing networks to issue e-wallets that are not linked to a bank account. (I understand that, at present, this is not allowed, and that all e-wallets have to be linked to a bank account.) This will allow the existing platforms to serve the serve the entire population, including foreigners in China.

2. Ensure that the payment platforms operate soundly and the interest of the consumers are protected. These platforms have to be registered and approved by the state regulator and have to comply with regulations that ensure that they operate soundly and properly and are audited independently. 

3. Ensure that the platforms are inter-operable, i.e. digital payments can be made between parties that are registered in different platforms. This will remove the need for any party to be registered on multiple platforms. It will also allow for more payment platforms to be approved for operation and create a more competitive market (rather than a market that is dominated by a few large platforms).

 4. Allow the consumer to pay with a payment card that is linked to an e-wallet. This will cater for consumers that do not use a mobile phone. It is actually more convenient for consumers to pay with a payment card, instead of a mobile phone using QR code.

In summary, I think that it is a better approach for the central bank in China to expand the existing infrastructure of digital payments to reach out to a wider audience, rather than to build a new state owned payment platform to compete with the existing platforms. 

Tan Kin Lian




 

Add Comment

---