For China, Digital Yuan Sprinting Toward Olympics?
Let the digital currency games begin.
When it comes to central bank digital currencies (CBDCs), there is a wide gulf between concept and reality, between design and deployment.
In further evidence that China is pushing its CBDC efforts toward retail use cases – and toward the masses who, well, make retail payments – the People’s Bank of China (PBOC) is reportedly seeking to make digital currency available at the 2022 Winter Olympics.
Reports in Reuters peg the Olympic focus to pilots in four regions and cities. The geographies were announced by Sun Guofeng, who is head of the monetary policy department at the PBoC. There is no official timeframe for the rollout.
But triangulating that information with recent reports that tests of the digital yuan will be limited to smaller retail payments, rather than large-value transactions, the individual consumer may be considered the “low-hanging fruit” when it comes to getting and spending digital currency – and seeing if it works well.
The most recent news surrounding China’s CBDC efforts underscores a determination to get digital banknotes out into the field. And while recent Bank of International Settlement (BIS) research notes that a majority of central banks are looking into their own versions of CBDC – 80 percent of 66 central banks queried were doing so – China seems ahead of the pack.
And the U.S. Fed? As noted in this space a week ago, the Federal Reserve is teaming up with the Massachusetts Institute of Technology to examine infrastructure that would underpin digital dollars.
China, for its part, has an installed base where 83 percent of payments are made through mobile (tech-driven) means.
It may be the case that setting up digital yuan to tie into the Olympics sets the stage for a controlled experiment, where individuals can conceivably buy tickets or food, for low-value but reasonably high-volume transactions. There’s also the benefit of working with only a few mobile payment platforms to get to scale, where Alipay and WeChat control almost all of the domestic mobile payments market. It makes sense that those two dominant players would want in on the CBDC push.
Recent reports have also pegged the digital yuan as being compatible with banknotes at a one-to-one ratio. As the BIS has noted, thus far, central banks look toward digital currencies as taking root right alongside paper and coins.
As reported in centralbanking.com, “None of the designs we survey is intended to replace cash; all are intended to complement it,” according to BIS study authors Raphael Auer, Giulio Cornelli and Jon Frost. “In countries where digital payments are already very advanced, and cash use is declining, central banks may respond in particular to ensure the ongoing availability of a public sector-provided means of payment.”
The authors noted in their paper that China’s digital yuan “will be a cash-like liability of the [PBoC] available to the general public – and to foreign visitors of China – through account-based interfaces.” Against that backdrop, the launch of the digital currency is akin to bringing another payment method to a closed ecosystem, to see if it may be ready to ripple out more broadly.
To borrow another sporting analogy as the Olympics come into view: It’s going to be a marathon, not a sprint.