While China’s tests of its digital yuan have been a huge success, a launch is not imminent, according to a governor of the nation’s central bank.
Speaking at the Hong Kong Fintech Week conference on Nov. 2, Yi Gang, a governor of the people’s Bank of China, said nearly $300 million of digital yuan has been spent in various pilot programs, Reuters reported.
The two billion digital yuan was spent in more than four million transactions, he added.
Formally known as the digital currency/electronic payment (DC/EP) project, the first live test of China’s central bank digital currency (CBDC) began in April in four cities: Shenzhen, Chengdu, Suzhou, and Xiong’an.
In August, it expanded into China’s financial heartland, launching in Beijing, Hong Kong, Macau, and the wealthy Guangdong province.
Most recently, a major test was held in Shenzhen. Last month, the city government gave away about $1.5 million worth of the CBDC to 50,000 citizens in a lottery. Winners had one week to spend their 200 yuan—roughly $30—at 4,000 merchants able to accept the digital yuan. More than 95% downloaded the necessary digital wallet and spent with it.
Despite the success of the tests, the DC/EP initiative is still in its early stages, Yi said, pouring cold water on expectations that a full, nationwide launch is coming soon.
China has been clear in its desire to be the first major economy to launch a digital currency—The Bahamas beat it to the finish line with October’s release of the Sand Dollar—as a move to strengthen its international financial influence.
China has said it sees the digital yuan as a way to challenge the power of the dollar in international financial dealings. The PBoC has called DC/EP a “new battlefield” between nations that could cause great changes to international finance.
It’s not alone in thinking a digital currency could have a big impact. A big benefit of a CBDC would be to “dampen the domineering influence of the US dollar on global trade,” Bank of England Governor Mark Carney said in 2019.
Even after the digital yuan goes live, it will not replace paper money, Yi said according to Reuters. He commented:
“For a long time I see that we would have cash and digital currency coexisting in the future.”
One of the big tasks remaining is creating the “fairly complicated and fairly complete legal framework” needed for a digital yuan, Reuters reported that Yi said.
A particularly big issue is around transparency, he added.
While China has said it recognizes the need for privacy, said Mu Changchun, who heads up the People’s Bank of China (PBoC) digital currency research institute, left a gaping hole in that notion a year ago by talking about “controllable anonymity.” The PBoC intends to “keep the balance between the ‘controllable anonymity’ and anti-money laundering, CTF [counter terrorist financing], and also tax issues, online gambling, and any electronic criminal activities,” Mu said.
At Hong Kong Fintech Week, Yi was speaking on a virtual panel that included Agustin Carstens, head of the Bank for International Settlements, according to Bloomberg.
The BIS came out strongly in favor of CBDC’s in a June report calling them “the next step in the evolution of money.”