U.S.-Asia Business
China Launches Digital Yuan App - All You Need to Know
China has released the new digital yuan app for iOS and Android on domestic app stores. Now available to users in 23 cities across China, the app will enable millions of users to use the e-CNY by signing up through a range of commercial banks. In addition, Tencent-owned WeChat announced it would begin rolling out the e-CNY as a payment option on its platform, further introducing the digital currency to over 1.2 billion users. We explain what the e-CNY is, how to use the digital yuan app, and the possibility of widespread uptake of the digital currency.
Vice President of the People's Bank of China announced on September 19 that the digital yuan trial program will gradually be expanded to the whole of Guangdong, Sichuan, Hebei, and Jiangsu - the provinces in which the first four trial cities are located. No time frame for the expansion of the trial program has been announced thus far. The pilot program has already been expanded to cover a total of 23 cities across China, including the cities of Beijing, Shanghai, and Tianjin. In his remarks, the vice president stated that he hoped all participating institutions and pilot regions would continue efforts to promote the innovation of digital yuan application scenarios, improve the digital yuan ecosystem, and help to develop the legal digital currency.
2022 kicked off with a major leap forward for the e-CNY - also known as the digital yuan - as the beta version of the digital yuan app was officially launched for iOS and Android on Chinese app stores. Although the app has been available to some users in China for over a year under limited pilot programs, this is the first time the app is freely available for anyone to download and use in any of the selected pilot cities.
Users in 23 cities across China, including Shanghai, Beijing, and Shenzhen, can now pay for goods and services with the e-CNY. The e-CNY will also gradually be expanded to cover the entire provinces of Guangdong, Hebei, Sichuan, and Jiangsu, although the exact timeframe for this rollout has yet to be announced. Sign-up is possible through seven traditional commercial banks and two online banks, all of which are Chinese.
Shortly after the launch of the app, the Tencent-owned messaging app and payment platform WeChat announced that it would begin allowing users to select e-CNY as a payment option to pay for services. With over 1.2 billion users, of which around 750 million are active on a daily basis, this development could give significant exposure to the e-CNY, which some analysts say faces stiff competition from other online payment platforms - including WeChat itself.
The People's Bank of China (PBOC), China's central bank, first began trialing the e-CNY app in April 2020 when it launched internal testing in four cities. This pilot program has since gradually been expanded through invites and cash incentives to eventually reach 140 million registered users by October 2021, according to the PBOC.
In May 2021 it was also announced that the e-CNY would be integrated into Alibaba's services ecosystem. This allows users of Alibaba's food delivery app ele.me, grocery delivery app Hema Fresh, and e-commerce platforms Taobao and Tmall to pay for orders using the e-CNY - even though the digital currency is a direct competitor to Alibaba's payment platform, Alipay.
The digital yuan app is currently only available on Chinese app stores and only available in Chinese.
Below we answer some frequently asked questions about the e-CNY and the Chinese government's intentions with the roll-out of the digital currency.
What is e-CNY?
The e-CNY, also known as the digital yuan and officially called the Digital Currency Electronic Payment (DC/EP), is a digitized version of China's legal currency, the renminbi (RMB). It is issued by China's central bank, the People's Bank of China (PBOC). It is designed mainly to be used for high-frequency, small-scale retail purchases and transactions.
The e-CNY forms part of the monetary base (M0) of the country, which means the digital currency makes up a portion of the 'cash' that is in circulation.
Is e-CNY a type of cryptocurrency?
No. The e-CNY is a type of Central Bank Digital Currency (CBDC) and is issued by the People's Bank of China (PBOC). As such, it is not a decentralized currency, and it also does not operate on the blockchain.
What is the value of e-CNY?
The e-CNY has the same valuation as the RMB. Unlike many other currencies, the RMB is a fixed exchange rate currency rather than a free-floating currency whose value is determined by the market. The value of the RMB is pegged to currency baskets, such as the China Foreign Exchange Trade System (CFETS) RMB Index, which includes a number of advanced market currencies, including the US dollar and the euro.
Can I buy e-CNY?
At the moment, non-Chinese citizens are not able to buy e-CNY. However, there are channels through which foreigners can buy and trade in physical RMB - such as buying RMB in cash or buying RMB currency futures. As the e-CNY has the same value as the physical RMB, this remains an option for foreign investors looking to buy RMB.
Can I use e-CNY?
Foreigners are able to use e-CNY through the digital yuan app, however, there are a few caveats. They must be located in one of the 12 pilot cities or areas and have a bank account at one of the approved Chinese banks. Sign-up is also possible through WeChat Pay and Alipay-affiliated online banks, but in our trials, you still needed a Chinese bank account in order to top up the digital wallet with these two options.
How does the digital yuan app and digital wallet work?
The digital wallet, called the 数字钱包 shuzi qianbao in Chinese, is an online wallet through which you can keep track of and store e-CNY. It is accessed through the digital yuan app 数字人民币 shuzi renminbi. The digital yuan app is the primary means through which users can use e-CNY.
Users can set up multiple digital wallets on the app and set parameters, such as daily spend limits and the apps and services that can be paid for with the wallet, and link different bank cards.
Foreigners are currently only able to access limited functions in the digital yuan app as a Chinese identity card is required for some of the 'higher-level' wallet options (those that permit higher spending limits). Currently, only the lowest level wallet is available for sign-up without a Chinese identity card, which has an RMB 5,000 daily and RMB 50,000 yearly spending limit.
Who operates the digital yuan app?
The operators are commercial banks that have been approved to provide digital wallet and e-CNY exchange services to the public.
There are currently seven commercial banks that are eligible to provide e-CNY:
- ICBC
- Agricultural Bank of China
- Bank of China
- China Construction Bank
- Bank of Communications
- Postal Savings Bank of China
- China Merchant's Bank
And two online banks:
- WeBank (WeChat Pay)
- MyBank (Alipay)
Users have access to a wider range of banks if they choose digital payment options, but the payments must be done through the bank's third-party app.
Where is the digital yuan app available?
On April 2, 2022, the People's Bank of China (PBOC) released a readout of a meeting convened earlier in the week in which it announced it would expand the digital yuan pilot program to 11 more cities around China, including the six cities in Zhejiang province that will host the 2022 Asian Games.
Moreover, the areas of Beijing and Hebei Province that hosted sites for the 2022 Winter Olympics and Paralympics have also been converted into pilot areas now that the games have finished, as a pilot run of the digital yuan had been rolled out for visitors at the games in these areas. These cities and regions will be added to the 10 other cities and regions previously included in the pilot program.
Users in the following 23 cities and areas can sign up to use the e-CNY app:
- Shenzhen, Guangdong province
- Guangzhou, Guangdong province
- Suzhou, Jiangsu province
- Xiong'an New Area, Hebei province
- Chengdu, Sichuan province
- Shanghai
- Hainan province
- Changsha, Hunan province
- Xi'an, Shaanxi province
- Qingdao, Shandong province
- Dalian, Liaoning province
- Beijing (Winter Olympics and Paralympics sites)
- Zhangjiakou, Hebei province (Winter Olympics and Paralympics sites)
- Tianjin
- Chongqing Municipality
- Fuzhou, Fujian province
- Xiamen, Fujian province
- Hangzhou, Zhejiang province
- Ningbo, Zhejiang province
- Wenzhou, Zhejiang province
- Huzhou, Zhejiang province
- Shaoxing, Zhejiang province
- Jinhua, Zhejiang province
Moreover, the pilot program will be further rolled out to include the entire provinces of Guangdong, Sichuan, Hebei, and Jiangsu.
Can I use the digital yuan on WeChat?
On April 7, 2022, Tencent announced that it will now enable users to use the digital yuan as a payment option on its social media and payment app WeChat in the 23 pilot regions listed above. In order to use the digital yuan on WeChat, users have to first sign up with WeBank, Tencent's online bank.
However, users are required to input a Chinese shenfenzheng ID number in order to sign up for WeBank, so only Chinese citizens are currently able to use the digital yuan through WeChat.
Does the digital yuan app allow peer-to-peer transfers?
Yes, users will be able to transfer small sums of money (the amount will depend on the type of digital wallet they have) to peers, which will enable people to spend the virtual cash in more informal settings, such as repaying a friend for a meal or transferring money to a street vendor. Users will also be able to do this simply by touching their phones together, as the app is enabled by NFC technology.
How is the digital yuan app different from other mobile payment methods?
Functionally, using the e-CNY will be very similar to using other online payment platforms, such as WeChat Pay and Alipay. In its current design form, the digital yuan app lets users transfer money from their bank account to top up a digital wallet and choose which apps they would like to use the e-CNY for. Alipay and WeChat Pay also have digital wallets and enable online payments of third-party services through their apps.
As a user experience, this is very similar to how WeChat and Alipay work. However, as explained above, the e-CNY is essentially a digital banknote and makes up a portion of the country's overall cash supply. This means spending the e-CNY is unlike using a bank card or a digital payment platform (tied to a bank account), as the money from these sources comes directly from a savings or checking account.
In other words, when a person tops up their digital wallet from their bank account, they are essentially doing the virtual version of withdrawing cash from an ATM.
In addition, as the e-CNY is technically China's legal tender, it is illegal for any merchant to refuse this as a payment option. Merchants can, however, choose to refuse other payment options, such as WeChat Pay or Alipay.
Users can also spend the cash in their digital wallets even when not connected to the internet as the app uses NFC technology.
Will people take to using the digital yuan app?
Unlike the digital yuan app, WeChat and Alipay do have the distinct advantage that the payment functions are already embedded into a larger 'super app' that has a whole ecosystem of services and functions, and which are already explosively popular.
This is in part why analysts doubt the e-CNY's ability to compete with existing players and why the integration of the e-CNY into WeChat and Alipay is critical to its widespread uptake.
On the other hand, one of the benefits of choosing e-CNY, according to the PBOC, is the increased security and privacy that it offers. A document released by the PBOC in July 2021 describes how the e-CNY uses a "variety of technologies, including digital certificate system, digital signature, and encrypted storage to make double-spending, illegal duplication and counterfeit, transaction falsification, and repudiation unfeasible".
The digital yuan app also offers 'managed anonymity' and adheres to "anonymity for small value and traceable for high value". This means it will enable users to make small transactions without disclosing personal information. This is different from Alipay and WeChat Pay, which require real-name verification even for small transactions, a procedure that requires users to upload images of their ID papers. To sign up for the lowest-level wallet on the digital yuan app, users just need to register their phone number.
However, it bears mentioning that in China, all phone numbers must be tied to an ID number, which means that ultimately, even small transactions will be traceable, although perhaps less easily so.
Despite this, a shift in consumer attitudes toward big tech companies could also help propel the e-CNY. This is already beginning to happen, as suspicion and frustration over unfair consumer practices and concern over personal data protection arise. If the e-CNY can successfully position itself as a more secure digital payment option, it could begin to gain some ground.
The Chinese government already enjoys a relatively high degree of confidence, and it is possible that consumers may one day prefer to place their trust with the central bank rather than tech giants.
This article first appeared on China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in China, Hong Kong, Vietnam, Singapore, India, and Russia.