Challenges in Adoption of China’s Digital Yuan

Some participants in China’s pilot e-CNY programme are hesitant to hold the asset due to various issues. Details were presented in SCMP.

Journalists noted that most officials receiving salaries in CBDC rarely use it and convert it to cash.

“I prefer not to keep money in the e-CNY app due to the lack of interest [accrual]. Moreover, there are not many places—online or offline—where I can use the national digital currency,” shared one respondent.

Another reported that his spouse takes this step due to inconvenience in usage.

“She cannot deposit money or buy financial products using e-CNY,” he explained.

The publication noted that China has been a “functionally cashless” society for over a decade, yet many citizens remain hesitant to use CBDC due to surveillance concerns and limited application possibilities.

SCMP recalled statistics from the People’s Bank of China (PBOC), indicating that as of July 20, 2023, transactions worth over $250 billion have been conducted using the digital yuan.

Dong Yang, a researcher at Beijing’s Cheung Kong Graduate School of Business, stated that more efforts are needed to balance privacy and security if the government intends to expand CBDC nationwide.

“Paper currency is used anonymously, but e-CNY is quite different. The boundaries between tracking information and protecting information security need to be more carefully considered,” he explained.

According to former PBOC governor Yi Gang, privacy in CBDC is “the biggest issue” of the digital finance era.

Despite concerns, the former official stated that e-CNY can “fully protect privacy” through so-called “controlled anonymity.” This term refers to the absence of tracking for small payments, but its presence for large ones.

Since the currency’s inception in 2020, several Chinese jurisdictions have worked to encourage CBDC adoption. As part of the programme, they have issued over 180 million e-CNY ($26.5 million) in subsidies and consumer coupons.

In July 2023, one of China’s largest state banks, the Bank of China, began testing a new offline method for CBDC payments involving SIM cards.