The currency has faced serious hurdles since 2019, when China kicked off the ambitious rollout of its central bank digital currency (CBDC), the country’s digital yuan.
However, without any major price tag attached and still facing stiff competition from China’s established mobile payment giants, Alipay and WeChat Pay, both of which led to the game and user reluctance, the state-backed currency has struggled. Adoption challenges involve the Chinese government’s steps towards the digital yuan process.
Two days before the launch, the South China Morning Post reported that Charles Chang, director of the Fintech Research Centre at Fudan University, showcased the bottlenecks in adopting digital yuan. It’s not easy to convert what other consumers are paying for and transacting with to state currency, Chang said, adding that platforms such as Alipay and WeChat Pay have a near monopoly. Both platforms have a huge user base, so it is hard for the digital yuan platform to match up.
However, the People’s Bank of China (PBOC) has nonetheless aimed to scale its digital yuan program through those obstacles. Currently, 26 regions in 17 provinces are conducting pilot projects.
The slow but cautious response reflects the government’s suspicion that it doesn’t know how quickly the virus will spread. Some have even claimed the project ‘failed’ because President Xi Jinping is less involved in Chinese financial affairs.
China’s digital payments market is dominated by Alipay, which is run by Ant Group, and WeChat Pay, run by Tencent. China’s Transaction: The two account for leads, and both for the bulk of China’s Transaction.
China faces a choice between allowing the yuan to depreciate in the face of expected tariffs (and risk triggering a negative reaction from Trump that leads to more tariffs) or waiting for the actual imposition of tariffs before allowing the yuan to move.
— Brad Setser (@Brad_Setser) November 26, 2024
Yet more than 180 licensed non-bank payment institutions operate in the country. By July 2024, the digital yuan had a total transaction value of 7.3 trillion yuan or about 1 trillion yuan. The figure is improving, but experts aren’t sure it’s enough to shake up the incumbents fundamentally.
Chen Zhiwu, a chair professor of finance at the University of Hong Kong, said the internal facts of the digital yuan preponderate over many other payment methods. However, the Chinese yuan remains restricted by reality in its appeal worldwide, and the digital yuan is linked to it.
The PBOC has been promoting the digital yuan as it looks to make progress in the global CBDC race. Accusations of graft against former PBOC official Yao Qian are sure to come with the launch of the digital yuan, which is at the heart of China’s financial innovation program. The challenges are even deeper, though. Users will be reluctant to use the currency due to privacy and usability concerns.
China has introduced a new feature to increase adoption: a physical CBDC card with dynamic QR codes and offline payment abilities, among others. It worked much the same as most people’s debit card, allowing users to tap to pay and scan to pay, the first being something most of us can do using a traditional bank card and the second being a new service that’s still in the introductory stage. The digital yuan is more accessible to ordinary people because of this physical solution.
In Chinese supermarkets, facial recognition or QR code scan (linked to your CBDC account) now is mandatory for paying your goods. Many places don’t accept cash anymore. 🔊
If you are blacklisted by the Social Credit System, your payment will be denied 🚨🚨🚨
This system, if we… pic.twitter.com/x5fxl2kwqa
— Wall Street Mav (@WallStreetMav) August 22, 2023
However, deeper problems in the global digital currency market stalled their adoption of the digital yuan. A report revealed that China is among the nations that participate the most in cryptocurrency scams and have lousy jobs. This development may erode citizens’ trust in cost-backed financial innovations, including the digital yuan.
As China rapidly moves its CBDC, it must compete with the new global digital currencies and grounded domestic payment systems. If the government solves this, it will determine how to best cater to user incentives, data privacy considerations, and the overall competitiveness of the digital payments ecosystem. It will also determine whether the digital yield will persist or even win mass adoption.
This news is republished from another source. You can check the original article here
