State authorities in China are introducing payments by central bank digital currency (CBDC) for public transport fares, taxes and civil servant salaries as use of the digital yuan continues to grow.
The People’s Bank of China (PBoC) is at an increasingly advanced stage of rolling out the digital currency, officially known as the e-CNY, although a date for full issuance has not yet been announced. Following initial trials in October 2020, a pilot version of the e-CNY digital wallet was launched in 12 cities ahead of the 2022 Winter Olympics.
Currently the e-CNY is being piloted in 23 cities in total after the PBoC announced an expansion of the programme to another 11 cities in early April after a meeting that took stock of the digital currency’s progress and detailed next steps. The central bank explained it would ‘step up efforts to build the security and risk prevention system, improve systems for laws and regulations and standards, deepen the research on theoretical issues, and continuously consolidate the foundation of the pilot programme’. It also intends to ‘safeguard the security of the e-CNY system, balance privacy protection with crime prevention and thoroughly study the potential impact of e-CNY on the financial system’.
The digital yuan app is currently geo-locked and only downloadable in the trial localities. Nevertheless, the PBoC has found a ‘steady growth of participating users and vendors as well as the transaction volume, and the pilot use of e-CNY has been well-received by the market’, according to the central bank’s post-meeting update.
140 million personal wallets had been opened by November 2021, with transactions totalling around RMB 62 billion (about £7.2 billion) – these numbers had risen to 261 million wallets and RMB 87.6 billion (about £10.5 billion) in transactions by the end of the year, according to a PBoC update in January.
CBDC for salaries and public transport
Efforts to promote the digital yuan have most recently included China’s fourth largest city, Tianjin, starting to pay the wages of finance department workers in digital yuan.
Government employees were urged to set up digital yuan wallets in preparation for the full rollout of the digital currency, according to a press release (Chinese language) issued by the Tianjin Municipal Finance Bureau on 7 May. Describing a pilot phase as a ‘complete success’, the department said it would continue to expand its scope and ‘actively try to issue digital yuan in the payroll of all budget units at the municipal level’.
Twelve of the 23 digital yuan pilot cities are now accepting e-CNY payments on their public transportation systems. The latest addition includes the country’s third largest city, Guangzhou, where the digital yuan is now being accepted in city trams, according to local media reports from early May.
Passengers in the city, which has a population of 18.6 million, can pay for fares by generating a QR code with the digital yuan app. The Guangzhou Tramway Company said it would carry out a publicity campaign to attract more users to the new payment system.
Similarly, the city of Xiamen has been allowing public transport cards to be reloaded with digital yuan since early May, additionally offering a ten per cent discount for digital wallet users. The cities of Shenzhen and Chengdu were among the first to offer the digital yuan across their public transport networks when they launched pilots in July 2021.
CBDC trials for tax payments
Residents of several cities in the Zhejiang province, located south of Shanghai, began experimenting with digital yuan payments of personal income taxes and social security premiums in April, according to a different Chinese media report.
The Zhejiang Provincial Taxation Bureau had been conducting several trials runs with the PBoC to explore various tax payment methods using the digital yuan since March.
Zhejiang’s capital, Hangzhou, had been preparing to showcase the digital yuan during the 19th Asian Games, which it was due to host in September this year. During a meeting in April, city officials emphasised how ‘all departments should make every effort to promote the pilot work’ of the digital yuan in ‘key scenarios such as the Asian Games’. However, on 6 May it was announced that the sports event would be postponed to 2023 due to repeated outbreaks of Covid-19 in China.
In support of the digital currency’s wider rollout, leading mobile payments providers Alipay and WeChat Pay have installed new features. The former announced on 5 May that its app had added a button enabling users to download the official e-CNY wallet within its platform. WeChat Pay, operated by Tencent Holdings, set up a similar e-CNY wallet function on its app last month after adopting the digital yuan as a payment option in January. Meanwhile, users of Alibaba’s food-and-grocery delivery apps can now pay for orders using the digital yuan.
Nine out of 10 central banks worldwide are exploring CBDCs, and more than half are now developing them or running concrete experiments, according to a recently published Bank for International Settlements survey of 81 central banks. But China is well ahead of the pack relative to most major economies, for example the US, Eurozone and UK, all of which are yet to commit to launching CBDCs.
‘China’s digital yuan serving up CBDC ‘roadmap’: fintech expert’ – our news story (7 April 2022) on Shanghai-based author and fintech consultant Richard Turrin explaining how China is a decade ahead when it comes to developing a CBDC
‘Digital yuan accounts hit 140 million: PBoC official’ – our news story (9 November 2021) on CBDC usage rates
‘Digital yuan “technically ready” for international use as project “prudently advances”’ – our news story (21 July 2021) on the PBoC issuing an official update on its CBDC’s progress