Nov 26, 2022
From August 15 to September 23 2022, Thailand joined hands with monetary authorities of mainland China, Hong Kong, and United Arab Emirates in a pilot project to use “central bank digital currency” (CBDC) for cross-border trades, the “m-Bridge project”, developed by the Bank of International Settlements (BIS).
China’s CBDC is also called digital yuan or e-CNY. What is the current situation of e-CNY? What is its implication for RMB internationalization?
The Chinese central bank (PBOC) is way ahead of its global peers to roll out an official digital currency at scale. By August 31 2022, transactions using e-CNY surpassed ¥100 billion, involving 360 million transactions, 5.6 million merchants and more than 260 million personal e-CNY wallets in 23 pilot cities including Beijing, Shanghai and Shenzhen.
As a “central bank digital currency” (CBDC), e-CNY is not a cryptocurrency like bitcoin. It is controlled and issued by PBOC and does not depend on a blockchain. Its plus side:
1) a legal tender with reasonably stable value endorsed by a sovereign state;
2) user information not subject to possible abuse of the third party payment systems such as WeChat Pay and Alipay.
The down side, however, might be its “managed anonymity” under the principle of“anonymity for small value and traceable for high value”.
For example, a user may obtain an “anonymous” e-CNY wallet with a payment limit of ¥2000 per transaction, ¥5000 per day and a balance of less than ¥10,000. More personal information such as ID card and bank account is necessary for an upgraded wallet with a payment limit of ¥50,000 per transaction, ¥100,000 per day and a balance of less than ¥500,000.
It also seems to be more user friendly as the e-CNY app uses NFC technology. The cash may be splashed out from the digital wallets on a mobile device even when it is not connected to the internet (see graph below). Smart contract with programmability may also be applied to specify the scenarios of a conditional payment.
The Bank of Thailand (BoT) is collaborating with a few Thai commercial banks to test the Thai CBDC. The aggregate cross-border transactions in the “m-Bridge project” mentioned above totaled more than $22 million. BoT said it was possible to speed up cross-border transfer times from 3-5 days to just a few seconds. The technology will cut costs, improve business efficiency, reduce settlement risk, and support the use of local currencies in international payments.
e-CNY will thus boost the process of RMB internationalization by increasing yuan’s share as a global payments currency (2.44% in September 2022, compared with 42.3% for the U.S. dollar and 35.2% for the euro), and promoting the RMB Cross-border Interbank Payment System (CIPS) independent of SWIFT.
Figure: e-CNY Wallet Embedded in a Card