Usage rates of one of the world’s most progressed and significant central bank digital currency (CBDC) projects have increased significantly, according to a senior official from the People’s Bank of China (PBoC).
China’s central bank is at an advanced stage of developing its digital yuan, officially known as the e-CNY, and its updates are analysed closely given the country’s size and international significance.
The number of CBDC digital wallets downloaded in China has grown to 140 million including 10 million corporate accounts, Mu Changchun, the director-general of the central bank’s Digital Currency Institute, said during Hong Kong’s FinTech Week. Transactions in e-CNY reached around RMB62 billion (£7.2 billion) in trials rolled out in about a dozen regions, Mu added.
In comparison, 20.87 million personal wallets and 3.51 million corporate wallets had been opened by June, with transaction value approximating RMB34.5 billion (about £4 billion). Similarly to June, when the PBoC stated in a white paper that it had no preset timetable for the official launch of the project, Mu told the conference audience that there was still no official launch date for the digital currency.
Three challenges before official launch
Before launching the e-CNY, three challenges needed to be addressed, Mu said. The first was capacity building: “On the one hand, we seek to improve the user experience […] in a wide variety of use cases. On the other hand, we are building a system for all the merchants.”
The second challenge Mu pointed to is a “sound security and risk management mechanism”. Due to the risk of attacks from hackers, the PBoC was collaborating with national teams in trials and security trainings and improving security management for the e-CNY operations system “covering the encryption algorithm, financial information security, data security and business continuity”.
The third challenge the PBoC is facing is a “well-defined regulatory framework”, Mu explained. While China does not have “big obstacles in terms of law”, regulatory measures and the requirements for the e-CNY need to be tailor-made.
Bank of Russia deputy governor Alexei Zabotkin, also a panellist at the ‘Retail CBDC: A Lesson from the Fast Movers & the Road Ahead‘ session on 3 November, stated that his country would be carefully watching the PBoC’s progress and incorporate learnings into the final decision on the introduction of its own CBDC.
“At this point, there is no predefined timeline,” he said about a potential digital ruble. But Russia’s pilot is to commence in early 2022 and based on the results, the central bank will formulate a roadmap for digital ruble deployment, Zabotkin said. In July, the central bank announced that 12 banks would be involved in initial testing.
‘Managed anonymity’ among key features
Later on in the panel discussion, Mu pointed out how the e-CNY’s design and architecture was different to that of the digital ruble. “Managed anonymity is one of the key features of our e-CNY,” he said.
The e-CNY wallet adopts tiered arrangements in order to strike a balance between privacy protection and safety requirements. Authorised operators can open four types of digital wallets for their customers and set transaction and balance caps accordingly.
“Currently the least privileged wallets can be opened with only a phone number and are fully anonymous even to the PBoC and authorised operators,” Mu explained. Daily transactions for this type of e-wallet holder would be capped at RMB5,000 (about £577), with an annual cap of RMB50,000 (about £5,770). The highest privileged e-wallet would have to be opened at a bank counter with personal identification, with no transaction cap imposed.
He reiterated that the e-CNY system would collect less transaction information than traditional digital payment services. The PBoC “does not provide the information to any third-party or other government agencies unless stipulated otherwise by law or regulations,” Mu said.
Strengthening data protection
Personal data protection is “high” on the PBoC’s agenda, the central bank’s governor Yi Gang said in a keynote speech at Hong Kong FinTech Week. “Recently, we have focused on cracking down on excessive collection of consumer data and ‘unfair clauses’, which require consumers to hand over personal information in exchange for financial services,” Yi said.
At the same time, China’s financial institutions were required to collect, use and store information for “legitimate purposes and in strict accordance with the principles of lawfulness and minimum necessity, to protect privacy when using personal information for commercial purposes,” the governor explained.
Emphasising the importance of a “sound legal and regulatory framework” Yi said the PBoC would “continue to improve the legal framework for personal data protection in the financial sector and strengthen regulation”.
Additionally, he pointed out that the topic of data protection called for international co-operation. “Given the cross-border, cross-sector and cross-region nature of fintech, national authorities, including the legislative, the judicial and the administrative bodies, should strengthen domestic and international coordination in such fields as anti-trust, data and consumer protection,” Yi said.
‘BIS’s Coeuré urges “acceleration” in global CBDC efforts’ – our news story (13 Sep 2021) on Benoît Coeuré, head of the Bank for International Settlements (BIS) Innovation Hub, encouraging his fellow central bankers ‘roll up our sleeves and accelerate our work on the nitty-gritty’ of CBDC design in a speech entitled ‘Central bank digital currency: the future starts today’
‘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 plans
‘Digital yuan is “back-up” to private payment platforms, says PBoC’ – our news story (26 March 2021) on Mu Changchun saying that China’s CBDC was needed as a ‘back-up’ for the country’s retail payments system and would co-exist with private technology platforms
‘China and UAE join HK-Thai explorations of cross-border digital currency payments’ – our news story (24 February 2021) on the central banks of China and the United Arab Emirates teaming up with the equivalent authorities in Hong Kong and Thailand to investigate the potential for CBDC use in cross-border foreign currency payments