China has been working hard to get its e-CNY ready in the run up to the Beijing winter Olympics with the aim of using the games to test its CBDC. The e-CNY could be used by visitors to China as well as the local population. For the Chinese population, the e-CNY has to be evaluated alongside the ubiquitous WeChat Pay and Alipay payment systems.
The e-CNY ‘project’
The e-CNY pilot started in October 2020 and is now live in 12 cities, including Beijing and Hebei Province’s Zhangjiakou, home to the Winter Games venues. By the end of 2021 transactions worth 87.5 billion yuan, almost $13.75 billion, had been made in e-CNY, about 0.02% of all mobile payment transactions in 2020. 261 million people were said to be using the e-CNY by the end of 2021 with eight million merchants accepting it.
Mu Changchun, Director General of the Digital Currency Research Institute at the People’s Bank of China (PBoC) told an Atlantic Council conference on 14 February that $315,000 worth of e-CNY was being spent each day at the Olympics.
To pay using the official app, users select one of the eight banks that supports the e-CNY service, register their mobile phone number and password and charge the app with e-CNY. Payments are made by scanning a QR code at the point of sale. They can also use the AliPay and TenPay apps to manage their e-CNY transactions.
For visitors without ID issued by China or a Chinese bank account, it is possible to use a physical e-CNY card. Visitors scan their passport at a designated automatic exchange machine and insert foreign currency to receive the card charged in e-CNY. Then they just tap the card to pay. Specialised ATMs were set up at game venues that accepted foreign currency banknotes, and converted them to e-CNY, or ordinary yuan currency notes.
One of the aims of the Olympic pilot was to test the scalability and throughput of the e-CNY system. While AliPay is reported to have cleared 544,000 transactions per second (TPS) during the peak of the 2019 Single’s Day shopping event, e-CNY is currently set up with a more modest goal of 10,000 TPS, albeit with a future capability of 300,000 planned. Visa’s TPS is only 1,700. Project Hamilton, the Boston Federal Reserve’s CBDC project in conjunction with MIT, has reported handling between 170,000 and 1.7 million TPS.
The e-CNY is also intended, in the long term, to provide competition to China’s two payment giants, as well as resilience in the event of a crisis. AliPay and TenPay have over 900 million monthly active users in China.
In October 2021 PBoC said 123 million individual wallets and 9.2 million corporate wallets made 142 million transactions worth RMB56 billion, about $8.8 billion. Given that that translates to an average balance of RMB3 for each individual wallet and RMB31 for corporate wallets, perhaps many of those wallets are not active. The figures to the end of December 2021 are impressive, perhaps reflecting the publicity in the run up to the Olympics.
Incentives and protection against monetary risk
e-CNY holdings do not earn any interest and, in addition, PBoC offers deposit insurance on bank accounts under RMB500,000, about $79,000. There is little incentive, therefore, for people to switch away significantly from using the banking system to store value. PBoC also has the option to charge a small fee for frequent withdrawals from the e-CNY system as an added defence against a dramatic shift toward e-CNY.
The e-CNY has a principle of ‘anonymity for small payments’ and ‘minimum collection of personal information’. If users want a balance limit of 10,000 e-CNY, a transaction limit of 2,000 and 5,000 e-CNY per day, users must provide a registered phone number. If higher limits are needed, ID and banking information must be provided. In addition, China plans to use artificial intelligence and big data technology to monitor suspicious and illicit activities.
The e-CNY uses a centralised ledger to record transactions. It also has a tributed ledger for reconciliation at the end of the day, suggesting that China is still exploring using a permissioned distributed ledger technology for its e-CNY. As with other central banks, PBoC appears to be keeping its options open.