China’s central bank digital currency (CBDC) app, e-CNY, has achieved a significant milestone, recording 180 million personal wallets and processing transactions worth ¥7.3 trillion ($1.02 trillion) by July 2024. This showcases China’s commitment to modernizing its financial system and demonstrates how the CBDC is reshaping the way money is transferred.
In a recent report by local news outlet Finance.Sina, Mu Changchun, the Director of the Digital Currency Research Institute at the People’s Bank of China (PBoC), explained how China’s CBDC, also known as “digital RMB,” operates through two models: the account model and the value model.
The account model allows the digital RMB to seamlessly integrate with traditional bank accounts, making it user-friendly. On the other hand, the value model enables users to exchange money using coin strings, facilitating smart payments on the blockchain. This flexibility allows the CBDC to be used offline, even in areas without internet or electricity, ensuring smooth transactions in various environments.
Mu also emphasized the focus on enhancing user experience and service improvements, despite the CBDC already processing ¥7.3 trillion worth of transactions. The system now supports diverse payment methods, such as QR code scanning, and has introduced new features like payments without electricity and the use of mobile SIM cards. Furthermore, the PBoC aims to expand the usage of China’s CBDC in public services like transportation, including buses and subways.
To ensure the efficiency of the digital RMB, Mu highlighted the need to improve support systems to ensure secure and seamless operations across banks and institutions.
However, there are challenges in the adoption of China’s CBDC. A report from the South China Morning Post highlighted concerns from users, including limited functionality compared to traditional accounts and the absence of interest earnings. Privacy and security are also significant concerns, with users worrying about the traceability of transactions and the exposure of their financial data.
Despite these challenges, China remains at the forefront of the global race for CBDCs. As of September 2024, 134 countries are exploring CBDCs, a significant increase from just 35 in 2020, according to data from the Atlantic Council. Of these countries, 65, including major economies like India, Brazil, and Australia, are in advanced stages of CBDC development or pilot testing.
China’s next steps will be crucial as it continues to innovate and address user concerns to ensure broader acceptance of its digital currency.
