The digital yuan, China’s central bank digital currency (CBDC), is being used as a security element in car prepurchase payment settlements. According to local media reports, a pilot test that allows customers to pay for their cars with digital yuan was established in early February in Shenzhen, and several customers are already purchasing their vehicles […]
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For now, the e-CNY app has a limit of 500 yuan ($77) per transaction and 10,000 yuan ($1,540) per day for offline payments.
The Bank of China is cooperating with China Telecom and China Unicom, two of the country’s major telecom operators, to enable offline transactions for the digital yuan via SIM cards. The move forms part of China’s broader push to digitalize cash and coins in circulation. It was announced on July 10 with trials commencing immediately the next day.
Per the announcement, the initial phase of the trials will involve only specific Android phones. Again, it will only take place in specific regions, including Beijing, Shanghai, Shenzhen, Chengdu, and Suzhou.
Users will be able to make payments with the digital yuan even without a bank account or an internet connection. To allow this, the trial combines the digital yuan app with specialized “super SIM cards” possessing near-field communication capabilities.
For now, the e-CNY app has a limit of 500 yuan ($77) per transaction and 10,000 yuan ($1,540) per day for offline payments. Users simply need to bring their mobile phones near the point of sale terminals or tap a QR code. Likewise, it will be possible to make payments without needing to turn the phone on.
In the future, the bank plans to expand the scope of the trial and explore additional use cases for the offline payment system.
China’s digital currency project has been in the works since 2014 when the People’s Bank of China (PBoC) established a research team to explore the feasibility and benefits of a CBDC. The digital yuan was the product of that effort.
The digital yuan is designed to be a legal tender that is backed by the central bank and can be used on various platforms, including online apps and offline devices. The PBoC has also introduced features such as programmability through smart contracts and controllable anonymity to ensure compliance and innovation.
As it stands, China appears to be leading the race for CBDC deployment globally. In 2022, the nation launched a trial of the e-CNY app. More recently, it expanded the usage of the digital yuan through the Belt and Road Initiative and cross-border trades. In Guanzhou, it is now possible to pay for public bus rides with the digital yuan. The nation also plans to extend digital yuan usage to pay taxes and utility services in the city in the future.
Despite its early successes, the digital yuan will face competition from existing payment platforms such as Alipay and WeChat Pay. However, the PBoC hopes to increase its influence by making the digital yuan a more secure, convenient, and inclusive alternative. The offline payment alternative is an innovative project to achieve this and the success of the trial will determine a lot.
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Although China has closed its doors to decentralized cryptocurrencies, Circle CEO Jeremy Allaire believes that stablecoins could play a role in the proliferation of China’s digital yuan.
Allaire, who heads up the company behind the United States dollar-backed stablecoin USD Coin (USDC), suggested that a yuan-based stablecoin might be China’s best bet for driving the adoption of its national currency in an interview with the South China Morning Post.
“If eventually the Chinese government wants to see the RMB [yuan] used more freely in trade and commerce around the world, it may be that stablecoins are the path to do that more than the central bank digital currency.”
China cracked down on the use of cryptocurrencies in 2021 while simultaneously blazing the trail for the trial, testing and issuing of its digital yuan central bank digital currency (CBDC). As of January 2023, the Chinese government noted that some 13 billion digital yuan are in circulation.
Interestingly, the digital yuan website claims that the currency will replace the dollar, Tether (USDT) and all other stablecoins, while stipulating that the CBDC will not be a stablecoin. The website allows users to exchange cryptocurrency for digital yuan through MetaMask or its own conversion portal.
Related: Hong Kong’s regulatory lead sets it up to be major crypto hub
Allaire conceded that China is unlikely to warm toward using decentralized cryptocurrencies and stated that Hong Kong’s progressive attitude toward the crypto sector could signal subversive support from the mainland.
The Circle CEO also noted that moves by various governments and central banks around the world to develop CBDCs that move away from “legacy technology into more modern distributed ledger technology” was positive, but it should not be misconstrued as a move toward accepting decentralized and self-sovereign systems:
“There’s a whole bunch of things that are useful from that, but I view that as very different from the work that the private sector does to innovate on the public internet.”
Nevertheless, the digital yuan is finding its way across Chinese borders. As Cointelegraph previously reported, Singapore-based, cryptocurrency-friendly bank DBS has developed a digital yuan merchant solution allowing Chinese businesses to receive payments in the CBDC.
The service allows clients based in mainland China to receive or collect digital yuan and have settlements made directly to yuan-based bank accounts.
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Cryptocurrency-friendly bank DBS is introducing new solutions for its customers in mainland China related to the digital yuan, also known as e-CNY.
DBS Bank China officially announced on July 5 the launch of the e-CNY merchant solution, allowing mainland businesses to receive payments in the central bank digital currency (CBDC).
DBS told Cointelegraph that the new service will allow DBS’ clients in mainland China receive or collect the e-CNY and have it automatically settled into their CNY bank deposit accounts. The company refers to this service as a “merchant collection solution” rather than a payment solution, as the merchant “collects” the final amount in CNY in their bank deposit account.
DBS’ solution is designed to enable a number of benefits, allowing businesses to collect CBDC “without having to go through manual settlement processes,” the announcement notes. The tool also features e-CNY’s capabilities allowing users to receive payments in underserved regions with limited internet connectivity.
Additionally, the solution provides reconciliation through consolidated merchant reports with itemized e-CNY transactions available via DBS’ digital platform for business banking.
According to DBS Bank China CEO Ginger Cheng, the company has completed the first e-CNY transaction involving a catering company in Shenzhen. She said:
“By seamlessly integrating a CBDC collection and settlement method into our clients’ existing payment systems, this will help position their business for a digital future where consumers in China use e-CNY for their daily activities.”
She added that the development showcases the firm’s commitment to improving user experience while “actively supporting the development of China’s financial market innovation.”
Lim Soon Chong, DBS Bank head of global transaction services, noted that the new CBDC service marks another milestone in the firm’s efforts of enabling instant and frictionless 24/7 payments. “We look forward to building on this launch to explore new digital payment solutions, such as cross-border CBDC payments,” the exec added.
Related: Chinese city of Jinan accepts CBDC payments for bus rides
Since launching the CBDC in 2019, China has significantly progressed in promoting and expanding the digital yuan. According to the country’s central bank, there were 13.6 billion e-CNY in circulation, or about $2 billion by the end of 2022. The CBDC is currently accepted across 26 cities and 17 provinces in China, with adoption expected to scale further as the program gradually expands to more regions.
DBS Bank is known for its pro-crypto stance. In 2020, the Singaporean megabank launched cryptocurrency trading and custody services for institutional clients. The firm was reportedly among the few companies in the world that reaped benefits from massive collapses in the crypto industry, seeing a 80% spike in Bitcoin (BTC) trading volumes in 2022.
DBS also participated in various government-related blockchain initiatives in Singapore, including Project Orchid, Project Guardian and Project Ubin.
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