Digital yuan

US lagging on CBDCs could spell ‘trouble’ — Crypto Council policy head

A former CIA analyst doesn’t believe the Chinese-led CBDC movement on the global stage will replace the U.S. dollar but may cause geopolitical headaches.

Yaya Fanusie, a cryptocurrency researcher and former CIA analyst, believes the United States government’s relatively slow start on central bank digital currency (CBDC) development may result in it losing its grip on the global financial system.

Fanusie, the policy head at crypto advocacy group, the Crypto Council for Innovation, explained in a Feb. 28 Bloomberg interview, that sanctioned states are looking to transact on financial infrastructure that isn’t controlled or heavily influenced by the U.S. to move funds more freely cross-borders.

Fanusie explained that state-issued CBDCs could be a part of the financial infrastructure that will be globally adopted. If the U.S. has little influence over these new standards, it “impacts U.S economic statecraft.”

If the U.S. continues to sit on the “sidelines” and lag on CBDC adoption, Fanusie believes this may spell “trouble” and cause unforeseen “geopolitical implications” over time:

“The potency of our sanctions power comes from the centrality of the U.S. to the financial global infrastructure. So if that shifts a little bit, it doesn’t mean that China is going to take over or that the yuan is going to displace the dollar but if there’s a viable new rail where sanctioned actors can now transact, that’s trouble.”

The U.S. Federal Reserve has, however, recently made progress on its CBDC — the digital dollar project — releasing the latest version of its white paper on Jan. 18:

Today we are proud to release DDP’s 2023 white paper update where we revisit our “champion model” proposed in 2020, provide recommendations to the US government and private sector and look ahead to the next stage in #CBDC developments @giancarloMKTS https://t.co/bX5u4zfqMc pic.twitter.com/si2joxbkq9

— The Digital Dollar Project (@Digital_Dollar_) January 18, 2023

However, the Federal Reserve has not received approval from the U.S. government to proceed with the CBDC project.

Fanusie highlighted that China has benefited from a near-first mover advantage, having explored CBDCs since 2014 and launching the pilot version of its digital yuan on Jan. 4, 2022, which Fanusie says has processed “millions of transactions” across “millions of wallets,” so far.

Fanusie added that there is an “array of pilots” testing out smart contracts to add programmability to the CBDC, and that China is helping other countries to adopt similar standards.

He added that an unspoken “race” is possibly going on in the CBDC frontier as nations look to gain a geopolitical edge.

“That’s happening whether we want to like it or not.”

However, previous commentators on the CBDC race between China and the U.S. have said that China’s CBDC ambition is purely about domestic dominance rather than trying to beat the U.S. dollar.

CBDCs run on state-controlled ledgers are reportedly more efficient and easier to use in some cases than decentralized public networks, such as Bitcoin and Ethereum.

However, some opponents of CBDCs believe states are adopting blockchain-powered CBDCs to maintain a degree of financial control over their citizens.

Part of the pushback in the U.S. recently came from pro-crypto U.S. Congressman Tom Emmer, who recently introduced the CBDC Anti-Surveillance State Act to protect the financial privacy of U.S. citizens from actions by the Federal Reserve:

Today, I introduced the CBDC Anti-Surveillance State Act to halt efforts of unelected bureaucrats in Washington, DC from stripping Americans of their right to financial privacy. pic.twitter.com/lONbHFZMk7

— Tom Emmer (@GOPMajorityWhip) February 22, 2023

China doles out millions in digital yuan in bid to boost adoption: Report

Multiple Chinese city governments have given away millions worth of e-CNY to try to promote consumption around the holiday season.

Millions of dollars worth of China’s central bank digital currency (CBDC) has been handed out across the country over the Lunar New Year period in a bid to boost its takeup.

According to a Feb. 6 report in the Global Times, an English-language outlet of the state-ruPeople’s Daily newspaper, around 200 “activities” for the e-CNY were launched across the country during the holiday period.

These activities aimed to “promote consumption” — the first time the government has done so since recently relaxing COVID-19 restrictions.

Multiple cities reportedly gave away over 180 million yuan ($26.5 million) worth of the CBDC in programs such as subsidies and consumption coupons.

In one example cited by the outlet, the Shenzhen local government handed out over 100 million yuan ($14.7 million) worth of e-CNY to subsidize the city’s catering industry.

*A QR code (blurred) for paying with digital yuan is displayed at a Chinese convenience store, users can scan the code and use e-CNY to pay for goods. Source: Wikimedia Commons*

A Feb. 1 China Daily report said Hangzhou issued each resident an 80 yuan ($12) e-CNY voucher on Jan. 16. The total giveaway cost the city around 4 million yuan, or $590,000.

Some of these initiatives proved to be very popular among residents.

Citing data from the e-commerce platform Meituan, the Global Times report stated that e-CNY given away by the Hangzhou city government for the New Year celebrations was taken up by residents within nine seconds.

The last few months has seen the government enact other targets and features to boost the usage of the CBDC.

On Feb. 1, senior ruling party officials in the city of Suzhous set a tentative key performance indicator for the end of 2023 of having 2 trillion yuan ($300 billion) worth of e-CNY transactions in the city.

The target is ambitious considering cumulative e-CNY transactions only crossed 100 billion yuan ($14 billion) in October, two years after the CBDC’s launch.

In a bid to attract new users, in late December last year, the e-CNY wallet app introduced the ability to send “red packets” called hongbao in China, which is used for gifting money around the holidays.

The wallet app als received an update in early January allowing users to make contactless payments using Android phones — even if their device is without internet or power.

In December, a former Chinese central banker called the results of the e-CNY trials “not ideal,” and admitted, “usage has been low, highly inactive.”

China’s Hainan to boost NFT oversight as digital yuan trial ramps

Hainan’s market regulator wants to promote NFTs as part of the digital economy, but will actively work to weed out bad actors and speculative behavior.

Authorities from the Hainan province in southern China have vowed to increase oversight on the nonfungible token (NFT) sector to “promote the healthy development” of the sector and to stomp out fraud and other associated risks.

In a separate announcement, the People’s Bank of China (PBoC) also announced that it is working on new features for its Central Bank Digital Currency (CBDC) pilot program, referred to as the digital yuan or eCNY.

NFT oversight

In a public notice posted on Jan. 29, Hainan’s market regulator and nine other agencies from the province outlined a lengthy plan to tackle the NFT sector moving forward.

A translation of the document reveals that the regulator is placing emphasis on promoting NFTs as part of the digital economy, particularly as a way to attract foreign investment in the Hainan Free Trade Port.

The province agencies however said they want to oversee the NFT market in a way that restricts “market chaos” such as misleading information, speculation, copyright theft, fraud, money laundering and fictitious value.

Some measures outlined include “severely” cracking down on false propaganda under current frameworks such as the “anti-unfair competition law,” preventing copyright infringement by guiding and urging internet platforms to remove such content, and cracking down on fraud.

An emphasis has also been placed on educating the public by conveying the “risks and laws” of the sector so that they “purchase cautiously” and avoid losses due to wild speculation on NFTs.

The Chinese government has had a unique outlook on the NFT sector since it boomed in popularity, while the asset class has not copped major blanket bans unlike private cryptocurrencies, state agencies have often been quick to deter any sort of speculative behavior.

Digital yuan adds bells and whistles

According to an announcement shared via Baidu on Jan. 30, the People’s Bank of China (PBoC) plans to add new features to its long-running pilot trails of the digital yuan.

The bank suggested that it is developing a QR code-based transaction system so that “ consumers can ‘scan with one code’” to make the CBDC more user-friendly.

It also emphasized that such tech integrations will help China “realize the interconnection between the digital renminbi system and traditional electronic payment tools.”

Another touted benefit of the QR code system is that merchants will be able “support various transactions” while limiting the increase of costs to consumers.

The PBoC emphasized that in 2022 it had piloted the CBDC across 17 provinces, and rolled out around 30 digital yuan red “envelope activities” in which it airdropped small amounts of the asset to citizens.

The campaign was used to promote the use of the asset, particularly concerning payments for “low-carbon travel” such as public transport.

Earlier this month, the eCNY network received a key upgrade via the integration of smart contracts.

According to a report from local crypto media outlet 8btc, smart contract features were launched via the food and retail focused delivery app from Meituan.

When users place and order and pay with their e-CNY wallet, a smart contract triggers and searches for keywords and purchased items in their order. If a user buys something on the list of keywords for the day, they go in the draw to win part of a prize worth around $1,300.

China’s Hainan to boost NFT oversight as digital yuan trial ramps

Hainan’s market regulator wants to promote nonfungible tokens as part of the digital economy, but will actively work to weed out bad actors and speculative behavior.

Authorities in the Hainan province in southern China have vowed to increase oversight on the nonfungible token (NFT) space to “promote the healthy development” of the sector and to stomp out fraud and other associated risks.

Separately, the People’s Bank of China (PBoC) has announced that it is working on new features for its central bank digital currency (CBDC) pilot program, known as the digital yuan or e-CNY.

NFT oversight

In a public notice posted on Jan. 29, Hainan’s market regulator and nine other agencies from the province outlined a lengthy plan to tackle the NFT sector moving forward.

The provincial authorities, however, want to oversee the NFT market in a way that restricts “market chaos” such as misleading information, speculation, copyright theft, fraud, money laundering and fictitious value.

An emphasis has also been placed on educating the public about the “risks and laws” of the sector so that they “purchase cautiously” and avoid losses due to wild speculation.

The Chinese government has had a unique outlook on the NFT sector since it boomed in popularity. While the asset class has not copped blanket bans like the ones China has imposed on private cryptocurrencies, state agencies have often been quick to deter any sort of speculative behavior.

Digital yuan adds bells and whistles

Meanwhile, according to an announcement shared via Baidu on Jan. 30, the PBoC plans to add new features to its long-running trials of the digital yuan.

The central bank said that it is developing a QR code-based transaction system so that “consumers can ‘scan with one code’” to make the CBDC more user-friendly.

It emphasized that such tech integrations will help China “realize the interconnection between the digital renminbi system and traditional electronic payment tools.”

Another touted benefit of the QR code system is that merchants will be able “support various transactions” while limiting the increase of costs to consumers.

The PBoC emphasized that in 2022 it had piloted the CBDC across 17 provinces and rolled out around 30 digital yuan red “envelope activities” involving airdroppingsmall amounts of the asset to citizens.

The campaign was used to promote the use of the digital yuan, particularly concerning payments for “low-carbon travel” such as public transport.

Earlier this month, the e-CNY network received a key upgrade via the integration of smart contracts.

According to a report from local crypto media outlet 8btc, smart contract features were launched via the food and retail focused delivery app from Meituan.

China’s digital yuan gets smart contract functionality alongside new use cases

China’s central bank digital currency (CBDC) has seen new use cases in recent days, including buying securities and making offline payments.

China’s central bank digital currency (CBDC) — the digital yuan, or eCNY — has received upgrades giving it smart contract functionality alongside a series of newly unveiled use cases.

The smart contract function was launched on the Meituan app, a Chinese app offering retail and food delivery services, according to a Jan. 17 report by local cryptocurrency media outlet 8btc.

When Meituan users place an order and pay with their e-CNY wallet, a smart contract triggers and searches for keywords and purchased items in their order. If a user buys something on the list of keywords for the day, they go in the draw to win part of a prize.

The prize is a share of a “red envelope” known locally as hongbao containing 8,888 yuan, worth a little over $1,300.

Hongbao are small packets traditionally used for gifting money around Chinese New Year as a gesture of good luck.

*A user prepares to send a digital red packet on the messaging app WeChat. Image: YouTube*

In December, the e-CNY wallet app introduced a feature for users to send digital red envelopes in a bid to boost adoption before the Chinese New Year on Jan. 22.

Digital yuan sees new avenues for use

Alongside the latest development, new uses for the e-CNY have also been added over the last few days.

A Jan. 16 report from the China Securities Journal said e-CNY was used to buy securities for the first time. Investors can also use the CBDC to buy securities with the mobile app for Soochow Securities, a local brokerage firm.

The digital yuan wallet app also received an update with users now able to make contactless payments using Android phones even if their device is without internet or power, according to a Jan. 11 Yicai Global report.

The new uses for the digital yuan come as China has been struggling with the adoption rate of its CBDC.

A former official from the People’s Bank of China (PBOC), the country’s central bank, even made a rare public admission in December that the digital yuan’s “usage has been low” and “highly inactive,” adding “the results are not ideal.”

On Jan. 10, the PBOC included e-CNY in currency circulation reports for the first time, revealing the CBDC represented roughly 0.13% of the 10.47 trillion yuan ($1.54 trillion) in circulation at the end of 2022.

Former Chinese central banker says digital yuan ‘usage has been low’

A former China central banker said cumulative e-CNY transactions only crossed $14 billion in two years, adding the results were “not ideal.”

A former official of the People’s Bank of China (PBOC), the country’s central bank, has expressed disappointment that China’s digital yuan is seeing little use.

Xie Ping, a former PBOC research director and current finance professor at Tsinghua University, made critical public comments about China’s central bank digital currency (CBDC) at a recent university conference, according to a Dec. 28 Caixin report.

Xie noted that cumulative digital yuan transactions had only crossed $14 billion (100 billion yuan) in October, two years after launch. “The results are not ideal,” he said, adding that “usage has been low, highly inactive.”

Despite the government’s rapid expansion of the trials and new wallet features to try to attract users, a January PBOC report stated that only 261 million users had set up an e-CNY wallet.

This compares to around 903.6 million people that utilize mobile payments in China, according to a 2021 China UnionPay report.

The former central banker said the use case of e-CNY “needs to be changed” from its current use as a cash substitute and opened to other uses such as the ability to pay for financial products or connected to more payment platforms to boost adoption.

He compared the digital yuan to other third-party payment systems in the country such as WeChat Pay, Alipay, and QQ Wallet, which allow for investments, lending or loans. He said they “have formed a payment market structure that has met needs for daily consumption.”

Some third-party financial apps are e-CNY compatible but see little use, as Xie said “people are used to” using the original service and change “is difficult.”

Such criticism of Chinese government initiatives is rare from former officials and signals the country may be seriously struggling to gain traction on its CBDC initiative.

The government has rapidly expanded e-CNY trails most recently in December to four new cities. It was previously expanded in September to Guangdong province, its most populous, and three others.

New features were added to the e-CNY wallet app in a bid to attract users in time for Chinese New Year that added functionality to send digital versions of traditional red packets or red envelopes (hongbao) containing money — a popular custom during festivities.

Think tank launches ‘technical sandbox’ exploring United States CBDCs

The Digital Dollar Project’s Technical Sandbox Program is set to begin in October, aiming to provide a clearer understanding of the ramifications of a United States CBDC.

A United States think tank has launched a “technical sandbox” aimed at advancing the exploration of a potential United States central bank digital currency (CBDC).

In a Wednesday Tweet from Digital Dollar Project (DDP), the organization said the new program would explore “technical and business implementation” questions revolving around a U.S. CBDC.

The organization noted that the initial participants of the sandbox include crypto-firm Ripple, financial technology company Digital Asset, software platform Knox Networks and banking solutions firm EMTECH.

The Technical Sandbox Program aims to give the federal government, policymakers and the private sector a clearer understanding of how a potential CBDC would be rolled-out.

This includes the potential implications to retail and wholesale and international use cases such as cross-border payments.

The U.S Federal Reserve has yet to decide whether or not it will implement a CBDC but has been exploring the potential risks and benefits that come with them.

On Jan. 20, it released a discussion paper examining the pros and cons of CBDCs but neglected to give any hints about its future plans.

The paper suggested that CBDCs could act as digital money free from credit and liquidity risks, improve cross-border payments, help preserve the dominance of the U.S dollar, promote financial inclusion and extend public access to safe central bank money.

Potential risks found included a changed U.S financial system, more severe bank runs for other forms of money, reducing the power of monetary policy, operational resilience and a difficult balance between transparency and safeguarding consumer privacy rights.

Meanwhile, China’s own CBDC, the digital yuan, is quickly being rolled out across the country, while the same is occurring in Nigeria with the eNaira. The Bahamas and countries of the Eastern Caribbean Currency Union have also launched CBDCs, while Russia is set to roll out its own in 2024.

The FedNow service, an instant payment service set to be launched in mid-2023, aims to begin “technical testing” in September, according to a Monday press release. FedNow is seen as a step toward an eventual CBDC.

Davis Wright Tremaine LLP partner Alexandra Steinberg Barrage, a former FDIC policy expert, tweeted her support for the program on Wednesday. Barrage suggested that regardless of what your views are on a U.S. CBDC, pilot programs and data are essential when evaluating new tech.

No matter your views on a US CBDC (retail , wholesale), it’s important to evaluate tech approaches alongside varied and complex policy issues. W/out data, robust public/private-pship, & pilots w/consumers and intermediaries, we cannot sharpen our thinking. @Digital_Dollar_ https://t.co/xLy02IOz6b

— Alexandra Steinberg Barrage (@alexbarrage1) August 31, 2022

The Technical Sandbox Program is set to begin in October with cross-border payments being the initial focus for the early participants.

The program is set to be released in two separate phases, including an educational phase and a pilot phase.

During the educational phase, providers and participants will seek to understand the technology from both a functional and business perspective. While in the pilot phase, the focus will be on identifying and testing specific ways in which CBDCs can be utilized.

The Digital Dollar Project is a partnership between the not-for-profit organization Digital Dollar Foundation and IT consulting firm Accenture. DDP seeks to encourage research and discussion around a U.S. CBDC and released a white paper proposing a tokenized U.S. digital dollar in May 2020.

Bank of China unveils new e-CNY smart contract test program for school education

Under the pilot test, parents could enroll their children in after-school vocation programs via smart contracts.

According to local news outlet Sohu.com, on Tuesday, the state-owned Bank of China announced a new program to bridge primary school education with smart contracts. In a combined partnership with local education and financial authorities, parents residing in the city of Chengdu, located in China’s Sichuan province, will be able to enroll their children in after-school or extracurricular lessons using the digital yuan central bank digital currency, or e-CNY.

Under the pilot test, parents start by paying a deposit to a private educational entity for a series of lessons. Afterward, a smart contract binds each lesson on a pro-rata basis to the deposit. This way, should their children miss a lesson, the e-CNY payment is automatically credited back to their account via smart contract. The Bank of China stated:

“The program seeks to explore the benefits brought forth by e-CNY smart contracts. One potential use case is replacing the role of regulatory authorities to monitor payment transactions between parents and private education entities. Another is improving transactions’ liquidity via zero transaction fees embedded in the e-CNY design.”

Previously, the Bank of China rolled out an e-CNY airdrop program for the residents of the city of Chongqing as part of a local incentive to lower carbon emissions. Users receiving the airdrop can dispense their funds for scooter rides, food deliveries without packaged utensils, recyclable shopping bags and tickets to public transport. Over 4,567,000 merchants across China now accept e-CNY as payment in alignment with the country’s strategy to stimulate and digitize the economy with the aid of emerging technologies such as blockchain.

China’s central bank to expand deployment of e-CNY

Over 4,567,000 merchants across the country now accept the e-CNY as payment.

According to China’s state institution Xinhua News Agency, Lan Zou, head of monetary policy at the People’s Bank of China (PBoC), announced that the country would be expanding the number of digital yuan (e-CNY) test sites in the country from 11 to 23. They are spread out across 15 out of 31 of China’s provinces and autonomous regions. The PBoC is China’s central bank and is responsible for the development of the e-CNY central bank digital currency, or CBDC. During Wednesday’s press conference, Zou praised the success of the recent e-CNY rollout, stating:

“e-CNY trials during the first half of 2022, such as acting as a means of payment during the Beijing Olympics, were spectacularly successful. The e-CNY has demonstrated to be an invaluable tool in improving quality of life, stimulating consumption, growing internal demand, and ensuring steady economic development through its functions such as smart contract utility.”

In its latest data update, Chinese consumers have spent a cumulative 264 million transactions amounting to $12.35 billion, or 83 billion CNY, as of May 31. More than 4,567,000 merchants across the country have begun accepting the CBDC. For the next steps, Zou says the PBoC plans to further increase the number of e-CNY test sites and enhance its technological capabilities.

During China’s ongoing strict coronavirus lockdowns, provincial and municipal officials frequently partnered with the country’s tech enterprises to unveil e-CNY airdrops . Users who received digital yuan could then spend the “gift” at specified platforms and in-app merchant terminals as part of an initiative to revitalize consumer spending. Aside from consumer goods, the e-CNY can be used to pay for various bills, such as taxes, at various municipalities.