BEIJING, CHINA – OCTOBER 23: Chinese President Xi Jinping speaks at the podium during the meeting … [+]
One of the most expansive research areas in writing a book about China and Bitcoin was the Digital Yuan. This latest guide summarizes what’s been going on with the Digital Yuan/e-CNY project as we enter 2024.
What is the e-CNY/Digital Yuan?
The digital Yuan is China’s version of a central bank digital currency, which means the central bank gets directly involved in issuing individual accounts to individuals. The Digital Yuan is the version of a retail CBDC that goes directly to people (as opposed to a wholesale one meant to interact with banks or other central banks). It’s intended to replace cash – as such, it doesn’t bear any interest and is pegged 1:1 with China’s domestic currency, the Yuan.
Specific merchants accept the e-CNY, and it is implemented in public transit systems in major cities like Beijing. During the Winter Olympics, it was one of three forms of payment accepted.
Can I buy Digital Yuan?
No, unless you are in one of the 29 pilot areas in China. If you’re abroad and don’t have access to the Chinese app store, then you can’t get access to it. More comprehensive guides have details on the 29 areas in China where you can get Digital Yuan.
Attempts to buy Digital Yuan on an iPhone will lead you to be denied if your phone location (note, not your IP, which can be modified) isn’t currently in one of the areas. However, if you are in one of the pilot areas, there is now a guide for foreigners to onboard onto it if they wish. Alipay and WeChat Pay have also released the ability for you to register for their systems with international credit cards. This seems to be in line with a broader effort in China to attract international visitors, including offering visa-free access for certain countries in 2024.
Is the Digital Yuan an alternative to Bitcoin?
The Digital Yuan comes from a state that has tried its best to ban Bitcoin. You can read the Digital Yuan as the response to this, with initial research starting around 2014 and the Digital Currency Research Initiative starting around 2016. However, the Digital Yuan has quite a few notable differences from Bitcoin.
1- Even though there are “privacy” tiers, the Central Bank requires personal identifiers to operate with the system. Even at the lowest tier, you’re required to provide a phone number, which, in China, is likely to tie your real ID if you bought the SIM in China.
2- The central bank chooses all vendors, and the code is closed-source and impossible to verify online. Initially, the central bank experimented with decentralized ledger technology, but now, it is a standard centralized ledger. This can have cybersecurity implications (as it’s a centralized software maintained by a government provider with access to user data) but also means that, unlike Bitcoin or technologies like Nostr, there is no way to verify the underlying code on a public Github repository, to build on the technology, or to develop your clients/features into the ecosystem – a lot of the dynamic innovation that has brought forth stablecoins and Layer 2s like Lightning Network would be simply impossible – and you’d have to trust a central bank, more used to governing other banks via documents and speeches, with technology, cybersecurity and user interface decisions.
3- The central bank releases transaction data selectively, so we don’t know the network’s status. From the data gleaned, a large number of wallets don’t transact often, but there is no public access to audit the network, so we have to rely on centrally released statistics from the People’s Bank of China.
4- Bitcoin’s price is determined by market determinations, while the Yuan is semi-pegged in a trading range with the US dollar. Some will find the latter more beneficial as they look to avoid volatility, but this may mean losing out on long-term return that exceeds the risk.
What is the current status of the Digital Yuan in 2024?
The Digital Yuan has been rolled out in 29 cities. Unlike the “pilot” language the Chinese state is rolling out, it’s been clear that the Digital Yuan is rolled out for full-scale implementation and is part of how China’s central bank tracks monetary supply. Though the pilots have rolled out with expiring funds, adoption is lagging – what public stats have been released seems to confirm that the Digital Yuan isn’t very popular. Anecdotal evidence – including this South Central Morning Post article on returning to Suzhou – indicates that most people are happy with Alipay and WeChat Pay.
While payment volumes, when data is released, indicate that the Digital Yuan has grown in terms of payment volume from its beginnings, the size of transaction throughput (a claimed $250bn in the first half of 2023) pales in comparison to the population and size of China and represented just 0.16% of all Chinese monetary volume. Still, it’s a notable uptrend from the $14bn or so reported in the first two years of the e-CNY’s initial start.
Hong Kong has piloted e-CNY acceptance, with guides being released on the topic and favorable mentions in state media—showing the constant attention of the Chinese party-state to rolling out the e-CNY more fully.
What are the privacy implications of the Digital Yuan?
The privacy tiers of the Digital Yuan mean that the central bank has control and access over personal identifiers and should also know each account balance. While the Digital Yuan offers an offline version of hardware smart cards that can transmit value over NFC, these cards can only be loaded with smaller amounts.
Not only does the Central Bank likely know each balance and each wallet account along with personal information needed to create those accounts, but it will also be able to expire monies, as it did with the airdrops it used to trial the e-CNY.
What are the Chinese state’s goals with the Digital Yuan?
While the Digital Yuan is not claimed to try to replace Alipay and WeChat Pay, China has had issues with the tech sector and has tried to rein it by detaining founders and preventing IPOs from going ahead. The banking system is well-used to working with regulators and law enforcement, providing a loyal backdrop that anchors the Chinese financial system – it would perhaps be preferable to get China away from a duopoly of potentially unreliable technology partners and towards a sector that the Chinese party-state has long supervised and used to fund the national stimulus. China’s main goal with the e-CNY, the retail CBDC, is to create another Chinese domestic payment option.
The Digital Yuan was rolled out to prevent monetary substitution from Libra and cryptocurrencies like Bitcoin, which was one of the original reasons. In a progress paper from the People’s Bank of China, cryptocurrencies are specifically cited as tools that “pose potential risks to financial security and social stability.”
China is also piloting Project M-Bridge with the BIS Innovation Hub wholesale CBDCs that interface with other central banks. With the joining of the UAE and Saudi Arabia’s central banks, this project is building toward a significant international effort and is part of a larger-scale strategy to internationalize the Yuan. China’s play here appears to be exporting and setting standards for digital cash for other governments and trying to improve cross-border payments for critical commodities in the short-term (for example, this buy of oil) – standards that governments, even rivals like India, will look to study.
