China uses Olympics to take lead in digital currency race

This photo shows the e-CNY app, center, on a smartphone screen. Foreign visitors to the Beijing Winter Olympics are able to make payments with the digital yuan via the wallet app. Yonhap

Attention growing on potential influence of e-CNY against US dollar

By Kim Bo-eun

HONG KONG ― China is at the forefront of a race among major economies to develop a centralized digital currency, launching its digital yuan for use at the ongoing Beijing Winter Olympics for foreign athletes and visitors. While the introduction came amid muted fanfare due to the strict control of overseas visitors and local residents to shield the Games from the COVID-19 pandemic, all eyes are on Beijing as it spearheads the central bank digital currency (CBDC) as monetary authorities around the world prepare to launch their own versions.

The People's Bank of China (PBOC) is the official banking partner of Beijing Winter Olympics, and the digital yuan is one of three available payment options for foreign visitors, in addition to cash and visa cards, according to media reports.

"China appears to be moving forward with CBDC use at the winter Olympics, although its use has been stalled by COVID-19, which has cut off the ability for local spectators to attend," Sara Hsu, a clinical associate professor of supply chain management at the University of Tennessee at Knoxville and an expert in China's fintech, said via email.

Beijing's drive for e-CNY

China's central bank began developing the digital yuan in 2014, and started pilot tests of the currency in major cities such as Beijing, Shanghai and Shenzhen in recent years.

The PBOC is seen to have pushed for the digital currency drive for greater monetary control and more efficient management of the money supply. Other merits include the low cost of issuing the currency.

The use of the digital yuan has grown over the years.

The PBOC said last month that more than 261 million individuals across the country are using the e-CNY mobile app, which is almost 20 percent of China's 1.4 billion population.

The e-CNY app shows how much in digital yuan is stored on the wallet app. / Yonhap

Total transactions since the launch of the bank's pilot test in 2019 amount to 62 billion yuan ($9.7 billion), with purchases of goods and services accounting for most of the payments.

"The PBOC's rollout of its new CBDC, the digital yuan or e-CNY is meticulous and extremely thorough," Richard Turrin, the author of "Cashless: China's Digital Currency Revolution," said via email. "The trial is being conducted city by city with new features rolled out and tested in each."

The central bank is seeking to expand the use of the digital yuan in the country, where digital transactions have already largely replaced the use of cash, backed by the rapid growth of fintech platforms belonging to tech giants such as Alibaba and Tencent. Earlier this year, the central bank launched a wallet app on the Apple and Android markets that can be used in 10 cities and regions running pilot programs.

"China's fintech sector has grown due to government support, high investor interest, and large domestic demand. In addition, the timing was right for the application of new technologies that helped control for credit risks and increase connectivity," Hsu said.

Some experts see the government's CBDC push as a means to diminish the dominance of private fintech platforms. Alipay and WeChat Pay have begun supporting the use of the digital yuan.

Turrin said, "It is important to think of this CBDC as a next step. Digital payments from Alipay and WeChat Pay are great but the new e-CNY is designed to go places and do things that neither of the payment platforms were designed for ― to bring the deeper integration of digital payment into China's digital society."

However, privacy concerns linger, as a central bank issuing and managing digital currency means that all transactions will be recorded on an easily traceable ledger. This privacy issue is one of the main reasons the U.S., EU and other major economies are stalled in making progress in developing their centralized digital currencies.

Another country that has made substantial progress with a CBDC is Sweden.

Riksbank began the pilot use of the e-krona in February 2020, and the project is now in its second stage. The Bank of Korea is also testing a digital currency, with the second phase to be completed within the first half of this year.

Countering US dollar?

Meanwhile, observers also view China's aggressive drive to push its CBDC as a means to undermine the dominance of the U.S. dollar. Data from the Bank of International Settlements shows that the U.S. currency accounted for 88 percent of daily international currency transactions as of 2019, while the yuan took up about 4 percent.

Turrin noted that while the digital yuan was not designed to be a "dollar killer," the Chinese government has been unequivocal in stating its policy goal of decreasing dollar dependence, both internally and ― by implication ― externally.

"The e-CNY's role will likely be to replace the dollar's use in trade with China and in doing so, decrease China's dependence on the dollar," he said. "This will be a big achievement for the e-CNY and change the dynamics of trade, particularly within Asia."