China's digital RMB trial surpassed $5.3B in transactions

• China’s digital RMB is a centralised, cash-like digital currency issued and controlled by the PBOC based on a two-tier operating system
• Nearly 21 million personal and 3.5 million corporate digital RMB wallets have been issued during the pilot phase
• The PBOC has given away over $49 million worth of digital RMB “red packets” or coupons as part of digital currency trial since October 2020

Despite being in its pilot phase, China’s digital renminbi (RMB) has been used in 70.75 million transactions totalling RMB 34.5 billion ($5.3 billion) by the end of June 2021. This is according to a white paper released by the People’s Bank of China (PBOC) in July 2021. The numbers are significantly higher than the 3.13 million transactions worth RMB 1.1 billion ($162m) recorded in August 2020 said PBOC’s deputy governor Fan Yifei.

China began exploring its own central bank digital currency (CBDC) in 2014. In its first white paper on the digital currency, the PBOC revealed that the programme now spans the Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Hebei, and China’s central, western, northeastern and northwestern regions. The PBOC initially launched the pilot in Shenzhen, Suzhou, Xiong’an, and Chengdu at the end of 2019. Shanghai, Hainan, Changsha, Xi’an, Qingdao and Dalian were added from November 2020 and will also include the 2022 Beijing Winter Olympics.

“As the top-level design, function development, and system testing have been completed, the PBOC initiated pilot programme in some representative regions, while making sure the pilot is run and managed in a steady, safe, innovative and practical manner,” the PBOC said in the white paper.

Designed as a substitute for cash in circulation (M0), digital RMB primarily serves domestic retail payment, is settled upon payment, and also supports off-line transactions. The issuance of digital RMB will further improve payment efficiency and cut costs.

The digital RMB adopts a centralised management model and a two-tier operating system. The PBOC issues and distributes digital RMB to operating institutions that are responsible for exchanging and circulating them to the public. Currently, the operating institutions include China’s six largest state-owned banks, namely Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications and the Postal Saving Bank of China, along with two private banks, WeBank and MYBank.

In addition, some commercial banks and non-bank payment platforms, such as Hainan Bank, Changsha Bank, Xi’an Bank, JDD, UnionPay Merchant Services and Lakala Payment, provide payments, money transfers and other services to digital RMB users. It will increase competition in China’s digital and mobile payments sector which is currently dominated by Alipay and WeChat Pay.

The digital RMB system collects less transaction information than traditional electronic payments and the provision of data to third parties or other government agencies is strictly regulated by relevant laws and regulations said the PBOC. Digital RMB wallets will be tiered based on the amount of personal information provided, and the tiers will determine the transaction and balance limits. The “least-privileged” wallets can be opened without providing any personal information, and users will be able to upgrade them to enjoy more services. Short-term foreign visitors can open a digital RMB wallet for daily transactions without opening a bank account.

As of 30 June 2021, 20.87 million personal and 3.51 million corporate wallets have been issued as part of the digital RMB pilot, compared to 113,300 personal and 8,859 corporate wallets in August 2020. Meanwhile, the digital RMB has been used for payments across more than 1.32 million scenarios, covering catering, shopping as well as public services such as transportation, utility and government services. This has increased from the 6,700 scenarios in August. The white paper also emphasised the use of smart contracts to enable the digital RMB to be programmable, more expandable, and better integrated into various scenarios.

Since October 2020, PBOC has given away RMB 319.4 million ($49.1 million) worth of digital "red packets" or coupons, some via a lottery, where winners can download a separate mobile app to receive the digital RMB and spend it at designated outlets. The digital RMB “red packets” were distributed to residents in several cities including Shenzhen, Suzhou, Chengdu, Beijing and Shanghai, to test and promote its use

Overall, China is far ahead of other major economies in developing CBDCs. Its test of the digital RMB has made promising progress despite the PBOC’s crack-down on the trading of cryptocurrencies, which it considers as posing significant risks to the global financial system.

Even as it continues to expand the test of digital RMB scenarios and ecosystems, the PBOC said in the white paper that it will explore the application of the CBDC in cross-border scenarios. Although there is no timetable for the official launch of the digital RMB, it is widely expected to be rolled out nationwide in 2022.