A Comprehensive Guide to e-CNY/Digital Yuan

This article contains research and thoughts similar to those in my book on Bitcoin + China, which has the rise of the Digital Yuan and central bank digital currencies as one of its major themes. I’ve been researching and writing about the rise of the Digital Yuan for the last few years, and I wanted to put a bunch of information about it in a more curated fashion.

What is the e-CNY/Digital Yuan? 

The Digital Yuan (called the e-CNY by the People’s Bank of China, China’s central bank – we will use both terms interchangeably here) is an attempt to create a digital currency backed by the central bank that digital wallet holders can use to pass digital value, similar to how Alipay and WeChat Pay currently work. The main target is foreigners (who won’t have access to Alipay and WeChat Pay) and the unbanked. Though the Chinese central bank has stated this is not a goal, it could eventually displace private tech companies and the payment rails that dominate China, made by Alipay and Tencent (which operates WeChat). 

Image credit: https://www.flickr.com/photos/cogdog/2859859616

What is a central bank digital currency?

The central bank issues a central bank digital currency in a digital format, which can vary from country to country. Still, central banks intend CBDCs to replace retail cash, i.e., the money you’re familiar with spending and using to live day-to-day life. Instead of having it on paper bills, the central bank wants the ability to directly issue your cash in your digital wallet so that you can then transact digitally by scanning a QR code and approving payment. 

A digital dollar, for example, would be hosted on a wallet and infrastructure provided by the Federal Reserve. Money has many layers; most of the layers involving “wholesale” (banks) rather than “retail” (people like you and me) are already on a digital layer. Banks communicate with their central bank on digital ledgers – there isn’t physical cash that can move at the velocity of these large digital ledgers.

The revolutionary part of a central bank digital currency is coached up in technical language as P0 – or as a replacement for physical cash. Now, central banks can interface directly with you and me rather than setting monetary policy through a network of private banks. In theory, this allows for much more monetary control. For example, a central bank could offer different interest rates for different people rather than just offering a country-wide policy rate for banks in the country to respond to, or it could add to balances or remove balances. With physical cash, the central bank can’t effectively block your transactions. Once cash is issued, it circulates in the economy and must be accepted. 

A central bank digital currency is radically different from cryptocurrencies, especially Bitcoin. Bitcoin hedges against central bank digital currencies—the cypherpunks who inspired it imagined a world where all digital currencies would be under central banks’ control. We’ll discuss this later, but one central point is that Bitcoin is run and validated by a network of individual nodes rather than a central issuer like China’s central bank. 

The Human Rights Foundation has created a Central Bank Digital Currency tracker, with different stages based on where each country is. China is listed as “Launched” due to the amount of activity involved, even though some media sources like the Wall Street Journal list it as “pilot status.”

How does the Digital Yuan work?

The Digital Yuan has a phone app available only in Chinese app stores. It works similarly to Alipay or WeChat Pay, scanning QR codes to send a value back and forth. There are also hardware wallets that act like smart cards with a preloaded balance.

This video from CNBC covers the basics of the smartphone app: for most people, it’ll look like a digital app on their phone, which they’ll use to scan a QR code to make payments. This flow is similar to the typical user flow of Alipay or WeChat Pay, though the number of merchants that can accept e-CNY still needs to catch up to those two options.

There’s also a physical load card that displays its balance and uses NFC to transmit value back and forth. The below example is from Pingwest. Many form factors have been tinkered with to get the underlying Digital Yuan balance – for example, there was a prototype with a walking cane. The People’s Bank of China will likely permit these charge cards to interact with one another and to purchase these cards without the need for ID or a phone number – however, keeping the amount each card can carry relatively low, as these would technically be payments slightly outside the PBoC’s control, and closer to physical cash in terms of privacy.

Source: Pingwest

Can I buy Digital Yuan?

If you’re in one of the pilot cities, you can download the “e-CNY app” and get e-CNY/digital Yuan – though you should be aware that the e-CNY is really meant to be pegged 1:1 to the RMB, and therefore has no investment utility – and is only practical for the smaller merchant set that accepts it.

How have the pilots for the Digital Yuan gone?

Written testimonials about the Shenzhen pilot for the Digital Yuan talk about the surprise people experience when they have been given free funds in e-CNY – given to them in text form, for example. The main issue that popped up was uneven merchant adoption. Trial users in Shenzhen reported going out of their way to spend these funds at merchants that accepted the Digital Yuan, sometimes traveling long distances and driving to find a merchant willing to accept Digital Yuan or making odd purchases such as an extra pair of glasses. The trial was time-capped – people only had a week to spend their funds, typical of the airdrops associated with the Digital Yuan. 

You can only use the e-CNY app if you’re in one of the pilot cities covering many of China’s significant “Tier 1” cities. This list of pilot cities includes:

The first ten “core cities” that kicked off the pilots for the e-CNY. This includes the following cities, including the first five zones:

  • Shenzhen is a metronym for China’s technological development and is known as a “tech hub” in China.
  • Suzhou is a city in Southeastern China close to Shanghai and is a significant hub for manufacturing.
  • Xiong’an, a development hub for the Beijing area, is expected to be populated by many state-owned enterprises and agencies built under the direct supervision of the State Council and the central government. 
  • Chengdu is the capital of Sichuan Province and the fourth-largest city in China. It is the westernmost gate city for China before bridging out to Tibet and Xinjiang. 
  • The Beijing Olympics site marks China’s need to appeal to tourists and foreigners and use marquee events to speed up e-CNY usage. 

In November 2020, the PBoC added the following cities to the list. 

  • Shanghai, the commercial capital of China, is China’s genuinely global city.
  • Hainan is often a domestic tourism hotspot due to its beaches and warm climate. Sanya, the southernmost spot in Hainan, is famous as a vacationing hotspot. 
  • Changsha is a historical city and the capital of China’s Hunan province, where Mao Zedong was born.
  • Xi’an is a city in China’s center leaning to its west and the ancient imperial capital during dynasties such as the Tang Dynasty. China’s first emperor, Qin Shi Huang, is buried here with the famed terracotta warriors. 
  • Qingdao, perhaps most famous for its namesake beer and brewery, is a city on the Eastern coast of China. 
  • Dalian is a city and major port close opposite to the North Korean shore. 

In 2022, the People’s Bank of China added the following cities on top of the original “core” ten cities that started the e-CNY pilots:

  • Fuzhou, the capital of Fujian province, is ranked one of the fastest-growing cities in the world by the Brookings Institute. Xi Jinping was the governor of Fujian from 1999 to 2002. 
  • Tianjin is a major port city in northern China, close to Beijing. It is one of the four cities in China, along with Beijing, Shanghai, and Chongqing, that are significant enough to be directly administered by the central government of the Chinese party-state rather than a provincial government.
  • Guangzhou, part of the “Greater Bay Area” of China, is trying to construct around Guangdong-Hong Kong-Macau, which Chinese state planners want to advance as a leading global region.
  • Chongqing, a major metropolis in the Southwest of China, is one of the four cities directly administered by the central government. It covers a large geographic area similar to some countries. Before his downfall, Bo Xilai, a rival to Xi Jinping, was the Party Secretary of the metropolis. 
  • Xiamen is a significant city that is part of the Fujian region Xi Jinping used to govern and is right across from Taiwan. 
  • Six cities in the Zhejiang province were close to hosting the Asian Games during the pilot expansion. A significant priority of the People’s Bank of China has been getting the e-CNY into the hands of foreigners, who are otherwise hard-pressed to interact with the Chinese banking system and digital payments ecosystem. Xi Jinping was governor of Zhejiang from 2002 to 2007. The six cities are Ningbo, Wenzhou, Jinhua, Shaoxing (famous for its cooking wines), Huzhou, and Wenzhou.
  • After the Winter Olympics, the PBoC confirmed that the capital, Beijing, and Zhangjiakou, the sites of the Winter Olympics, will continue pilots of e-CNY. 

The PBoC added five more pilot cities on December 16th, 2022. These are Jinan (the capital of Shandong province), Fangchengguan (the southernmost port in China), Kunming (the capital of Yunnan province), Nanning (the China—ASEAN gateway city), and Xishuangbanna (bordering both Laos and Myanmar). 

What unites the last four cities is their proximity to Southeastern Asian countries, from Vietnam to Laos to Myanmar. In total, 29 cities have confirmed a rollout of e-CNY, with one city (Changshu) rolling it out for staff payments of government officials. 

E-CNY is now well past the “pilot” stage even if the Chinese party-state calls it that – with active deployments large-scale across many of the largest cities in China and active encouragement of its use. The People’s Bank of China counts circulating e-CNY as part of the cash count in the Chinese economy. 

What is the status of the Digital Yuan? Are people using it beyond the time-capped trials, and are platforms integrating it?

The Digital Yuan has gone through multiple “pilots.” It’s been live in certain regions where authorities have given out Digital Yuan as part of a lottery. Receiving Digital Yuan through coupons on specific e-commerce platforms is also possible. 

One of the targets is foreigners traveling to China. China has a particular issue: many merchants now don’t accept cash. To access Alipay and WeChat Pay, you need a domestic banking account, which is very hard for people to access if they are foreigners without the right national ID or passport. So, for now, many foreigners struggle and either jump through loops to get a Chinese banking account (extremely difficult), are joined at the hip by somebody who has Alipay and WeChat Pay, or try to use cash despite its inherent struggles. One of the pilots directly addressing this was the bubble during the Beijing Winter Olympics. 

According to the latest, however, while China’s central bank has launched multiple pilots and tried to pioneer Digital Yuan usage, with Chinese state media also trying to pump it up, there doesn’t appear to be a large amount of adoption in terms of the amounts per wallet. Unlike Bitcoin, there isn’t a public ledger, so verifying the transaction volume is tricky. 

However, based on public reporting and anecdotal observation, it doesn’t seem like the Digital Yuan is currently widely used, and it looks like pilot users want to spend their free money but might not use the Digital Yuan for that much more. A former PBoC research director said in Caixin that cumulative usage was still around $14bn after two years – a low transaction volume (for reference, Bitcoin handled around $8.2 trillion in estimated value in 2022 alone). Remembering that WeChat Pay and Alipay are part of a larger ecosystem of “super apps” is essential. WeChat, for example, is the default way for many people to communicate with one another in China – and the Digital Yuan app is just a standalone financial product for now. 

Anecdotal evidence suggests usage is rare after an initial rush due to a pilot. For example, the South China Morning Post returned to Suzhou, one of the initial pilot cities, in March 2023 to see if people still used the e-CNY. They found that few shops offered e-CNY payment options, and consumers, even those who paid in e-CNY, were left wondering why they would keep e-CNY when they could transfer it to Alipay or WeChat Pay.

The Chinese party-state is trying to counter that by using state media to write positive mentions of e-CNY, paying state employees in e-CNY, and pressuring big online platforms to integrate with the e-CNY system despite the hesitance of smaller merchants used to Alipay and WeChat Pay. In August of 2023, for example, the People’s Bank of China claimed about 5.6 million merchants were accepting e-CNY (though, as we saw in the Suzhou example, whether that remains true to this day is still unknown.) However, Alipay services about 80 million merchants, which is more than a 10x difference – even though merchant transaction fees for using e-CNY should be 0%, unlike the charges for using Alipay and WeChat Pay. 

The average merchant transaction fee on Alipay is 0.55%. WeChat Pay is around 0.6%, and it has much more adoption among consumers, merchants, and transactions throughout – the competitive advantage of having a 0% merchant transaction fee isn’t significant. Merchant fees in the United States typically range from 1.5% to 3.5% for reference for credit card processing. Although Alipay and WeChat Pay are essentially a duopoly on non-cash payments in China, merchants have gotten a relatively good deal – partly because Alipay is part of the larger Ant Financial ecosystem, which has many more pieces (including wealth management and small business financing) than just processing payments, and that Tencent which runs WeChat is essentially running the “everything” app Elon Musk is trying to build with X – ubiquitous with payments and communications. 

For now, here are the tech platforms that offer e-CNY. Many of them offer coupons and free e-CNY to encourage e-CNY usage. This list includes Alipay and WeChat Pay, which the People’s Bank of China has been at pains to say its system is not seeking to replace but rather to integrate. 

AlipayAlipay is one of the two sizeable digital payment networks in mainland China, and it can process e-CNY transactions.
WeChatWeChat Pay is one of the two sizeable digital payment networks in mainland China, and it can process e-CNY transactions.
JD.comChina’s largest e-commerce platform, equivalent to Amazon, was the first online platform to support e-CNY.
MeituanMeituan specializes in group buying and food delivery and had about $30bn in revenue in 2021.
CtripCtrip is a travel platform aggregating deals on flights, hotels, and other travel expenses.
7FreshA fresh food grocery chain that planned to open 1,000+ stores in China in the next five years, owned by JD.com, 7Fresh now accepts e-CNY.

What are China’s goals with the Digital Yuan?

China’s central bank, the People’s Bank of China, has been careful to say that it will not offer individualized interest rates and is not seeking to replace WeChat Pay and Alipay. However, this can be easy to say and harder to see in practice. The point is instead that the central bank could do all of this and has been aggressive about giving people free balances. Removing balances would be a matter of political will rather than a technical constraint. 

The Chinese party-state is attempting four potential large-scale goals with the Digital Yuan.

The first is maintaining domestic control over monetary policy, often called monetary control in academic terms. A state is composed of many things, but one thing typically is a monopoly of money. The state is the sole entity allowed to control the money supply. It does this generally with a central bank. The Digital Yuan has been a response, at least timing-wise, to the possibility of the rise of Libra, a private-issue cryptocurrency that Facebook was considering releasing. However, research has continued since 2014 after the People’s Bank of China issued several regulatory notices about Bitcoin. The Chinese party-state, which hews tightly to political control of the economy using the Yuan, is a government that is particularly aggressive about the idea that Chinese capital should be controlled and that Chinese currency is under the state’s control – and has tried to ban Bitcoin in multiple ways. 

The second goal is to gradually move the payment processing ecosystem from tech companies to a more reliable banking system – at least for the state authorities. The People’s Bank of China and its major banking partners are rolling out the Digital Yuan. While WeChat and Alipay are on the list of partners, the Digital Yuan’s adoption of different merchant aggregators suggests that the Chinese party-state is trying to hedge against the massive merchant growth of WeChat and Alipay. The Digital Yuan also charges merchants no transaction fees, unlike WeChat and Alipay. This allows for a more seamless transactional layer in an era where AI bots can interact with one another and pay each other – and it also poses a real theoretical challenge for WeChat and Alipay’s merchant adoption (though not one we’ve seen in practice). Should the Chinese party-state get more aggressive about enforcing e-CNY adoption and force all merchants to accept it, a secondary effect will be to try to force payment processing away from the private tech sector and towards the mix of state-owned and privately owned but still tied to the state banks. 

The third goal is to more broadly internationalize the Yuan into more of an international reserve currency, which has been an explicit goal of the Chinese party-state for many years. This push for internationalization has come as the PBoC pilots what’s known as the M-Bridge, a CBDC-driven interoperable API with other central banks such as the Thai Central Bank and the Central Bank of the United Arab Emirates. The People’s Bank of China has also tried to set international standards for central bank digital currencies, something countries such as Nigeria have an eye on. The setting of standards for CBDCs is part of an overt effort to hedge against the US dollar’s dominance – especially in an age where the United States has gone aggressively against geopolitical rivals using the US dollar system to enforce sanctions. 

The fourth goal seems to be serving the underserved regarding banking in China. There are two specific targets here – the rural unbanked or those without access to the Internet. There are hardware wallets the PBoC has built with outside help that allow for the transfer of value between each other without Internet access. The Chinese party-state is also trying to get tourists to China to switch from using physical cash to being on the e-CNY – it’s tough for tourists to access WeChat Pay and Alipay, and increasingly, China is becoming a cashless society. 

What is the difference between Bitcoin and the Digital Yuan? 

China’s central bank has researched a Central Bank Digital Currency for potentially the most prolonged time among all countries, and the PBoC has been issuing rounds of restrictions on Bitcoin. 

There are a few critical differences between Bitcoin and the Digital Yuan, which help flesh out the differences between Central Bank Digital Currencies and “Cryptocurrencies.” 

The first is that Bitcoin is a globally distributed and verifiable system where one can contribute and “validate” the network without anything more than the right computer. This tenet of global access is also true of mining Bitcoin, though, in practice, only sophisticated enterprises with custom computing chips can mine Bitcoin. The People’s Bank of China controls all design decisions and data from the Digital Yuan. There isn’t a public feed of all transactions, for example, on the Digital Yuan, while Bitcoin needs that public record for the system to function. 

The second comes from the first – the People’s Bank of China determines the rules and who can access the system. There isn’t an open-source ecosystem of apps or other services that help people meet on a peer-to-peer basis, so you can only currently access the Digital Yuan in China. In theory, this also means that any balances may be stranded in China – politicians asking for a CBDC ban in the United States are unlikely to allow the Digital Yuan to interoperate outside of China like Alipay, and WeChat Pay have since the Digital Yuan is so directly tied to an organ of Chinese state power.

The third is that the People’s Bank of China is accountable to the Chinese party-state, while Satoshi designed the system so it could fade away. This difference in creators is a more important distinction than one might think, and it’s also the reason why Bitcoin stands out compared to other cryptocurrencies like Ethereum. Satoshi’s origin story is shrouded in mystery, but they haven’t moved their funds, which are now worth billions of dollars, a hedge showing the system’s political independence. Satoshi designed a system that could outlive its founder – because the premise of Bitcoin is that it gives coders the ability to build on top of it and to keep it running through new environments. People who own their private keys are not beholden to the system or anybody in it – they can freely flit between different services if they choose and access Bitcoin on their terms. 

What are the privacy/control implications of the Digital Yuan?

China’s central bank has claimed it will give the Digital Yuan “controllable anonymity.” The first thing to observe is that a Central Bank Digital Currency would be a step down from the privacy of cash, which is, in practice, challenging to trace. The People’s Bank of China has privacy tiers for access to wallets with transaction limits and hardware cards with smaller limits.

The tiers are defined as follows:

TierData RequiredAccess
4 (“Anonymous”)Mobile number (all mobiles tied to personal data in China, though “claimed” Privacy Law protections)10,000 RMB balance limit, 2,000 RMB transaction limit, 5,000 RMB limit a day5,000 RMB is approx ~$700 
3Mobile number and valid Shengfenzen (Resident Identity Card, with registration at local police stations)20,000 RMB balance limit, 5,000 RMB transaction limit
2Mobile number, Resident Identity Card, Personal bank account500,000 RMB balance limit, 50,000 RMB transaction limit, 100,000 RMB limit a day
1 (“No limit”)Mobile number, Resident Identity Card, Personal bank account, Operating agency siteNo limits

As one can see, even to operate on the lowest level of privacy offered to access the system and transact (with relatively strict financial limits), you must provide a phone number, which, under Chinese law, you must register with a state ID. So, the identity of everybody using and transacting with the system, unless you use the hardware cards (designed not to be loaded with too much), would be known to the People’s Bank of China and state authorities. It would be a matter of trusting the state authorities not to put those links together. 

While the People’s Bank of China has not offered the possibility of individualized interest rates (in fact, the Digital Yuan is constructed not to provide any interest and so is indeed like cash in that regard), there are coupons and access to the system that the People’s Bank of China regulates. It’s conceivable that part of the rewards and punishments in the legal system—for example, the social credit score—will be associated with it.

Perhaps the best way to summarize China’s likely approach to the Digital Yuan is Mu Changchun’s proclamation as the head of the PBoC’s Digital Yuan research that “there is no true freedom without discipline.”

Has China been trying to export the Digital Yuan around the world?

The short answer is yes, but you can’t buy or access the Digital Yuan app overseas yet. Yet, in working with foreign central banks to create a bridge and with organizations like the BIS to set CBDC standards, China is seeking to be a first mover in the space and intends to try to bring CBDC lessons to other governments around the world. 

If your country has a CBDC example, it will draw some inspiration from the setup and rollout of China’s e-CNY since China’s e-CNY is the largest central bank digital currency operating at scale now. Even though China claims it’s still in pilot stage, state officials have used e-CNY to pay civil servants and bridge the gap between overseas payors at China’s marquee sports event. It has been distributed widely in many cities, and it has an app available on the iOS app store and the Google Play store. The e-CNY has rolled out – and governments outside of China will be hungry to see the results, especially if the sticking points of slow adoption among consumers and merchants can be overcome.

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