Just last month, officials in China’s Hangzhou city were gearing up for the September 2022 Asian Games to showcase the city, and by extension the use of the country’s digital currency at the event. Not anymore.
On May 6, the governing body Olympic Council of Asia (OCA) said the Asian Games will be postponed to 2023 due to repeated outbreaks of Covid-19 in China.
Besides being disappointing news for thousands of athletes, the postponement raises questions about plans by the People’s Bank of China (PBoC) to fast-track adoption of the digital yuan. As the Covid-19 outbreaks in China, especially the mass lockdowns in Shanghai, slow the economy, will the same happen to the digital currency rollout?
According to the Hangzhou Development and Reform Commission office, the pilot plans for the digital yuan in the city will continue, but an official in the office who declined to be named noted the PBoC is leading the project. The central bank’s office in Hangzhou declined to comment on the record.
Stanley Chao, the U.S.-based president of business strategist All In Consulting, says the Asian Games delay is just a symptom of a bigger problem for the digital currency.
“I don’t think the postponement of the various sporting events has a direct impact on China’s digital yuan, but rather, the reason why these events were postponed, because of Covid lockdowns, that impacts the digital yuan,” said Chao, who has run China business consultancy services for more than 20 years.
“China wanted to create a buzz around the digital yuan so incorporated the testing around major domestic and international events like the Olympics, Chinese New Year, and the Hangzhou Asian Games,” he said. But with mass lockdowns, Chinese consumers aren’t in a buying mood, he added. “This is definitely not the proper atmosphere to test the yuan.”
The digital yuan, otherwise known as e-CNY, is a central bank digital currency (CBDC) designed to replace current physical notes and coins. Other central banks around the world plan their own CBDCs, but China is regarded as being well ahead in such developments as it has been working on the project since 2014.
The digital currency has been available since October 2020, but the e-CNY smartphone app was officially opened to the public in pilot cities on Jan. 3 this year. The number of iOS and Android downloads of the app reached more than 83 million as of May 10, according to Data.ai and China’s app market monitoring platform Kuchuan.
Slicing and dicing that total number on the assumption a person has one mobile phone and each phone has only one e-CNY app, then more than 29% of the population in the 23 cities have installed the app for mobile payments.
The 23 cities have a combined population of 278 million, accounting for almost 20% of the national population.
While those download numbers look impressive, according to Data.ai, the average daily active users of the e-CNY app on iPhones number 1,871.
Other data released at the end of last year showed the average transfer amount of each personal digital yuan wallet was 335.5 yuan (US$52.66), which is 1.4% of the average annual expenditure of Chinese residents in 2021.
The actual average transfer volume could be even lower if the transaction volumes made by institutional and business wallets are taken out.
In comparison, the average payment made on the popular Alipay app reached 148,000 yuan in Shanghai in 2016, according to the latest data available. Beijing, Zhejiang, Fujian and Jiangsu all had average payments via Alipay of more than 100,000 yuan in the same year.
Still, with the weight of the PBoC behind it, use of e-CNY is spreading, with local governments incorporating use of the digital cash in more public services, including taxation, electricity bills, public transport fares, and highway tolls.
Promoting use of e-CNY has become a performance appraisal tick-box for employees of major banks in Guangzhou, while the city of Tianjin has begun paying the salaries of some finance department workers in the digital currency, according to Chinese media reports.
Selected hospitals in Hangzhou and Guangzhou have begun accepting digital yuan payments for medical treatments.
Covid vs. Yuan
Others involved in the development of the digital yuan see the disruptions brought by Covid-19 as an opportunity.
Amnon Samid, the chief executive officer of Israel-based Bitmint, has been involved in payment trials for China’s digital currency since 2018 and his company licenses CBDC technology.
“The Covid-19 pandemic is actually hastening the digital transformation of the economy, and may open up new opportunities,” he said in an email response to questions about e-CNY.
He agrees the pandemic-induced lockdowns in China are causing serious disruptions across China and will hinder e-CNY trails, but said the digital yuan will support the process of building back and help the digital currency gain wider public support to challenge the dominance of prevailing mobile retail payments apps.
But for Chao at All In Consulting, China’s central bank may now have bigger priorities than driving the digital currency rollout.
“With over 300 million people in 40 cities affected by the latest (Covid-19) lockdowns, China may have a recession looming. Real estate valuations are down, consumer spending is at an all-time low, and supply chains are just coming back from the Shanghai-area lockdowns,” he said.
“I believe the digital yuan has been pushed down the priority list and may further delay its rollout by up to two years, but that’s very dependent upon China’s future Covid situation.”
Another factor is the Russian invasion of Ukraine and Beijing’s unwillingness to criticize Russia, which has led to speculation that the digital yuan may become a tool to help Moscow evade sanctions, Chao said.
For Beijing, “it’s best now to keep the digital yuan quiet, don’t make any noise, any big announcement and wait for the geopolitical situation to cool off a bit.”