Development and Trend of the Digital RMB in China

Release Date : 2024-04-24

Tan, Ching-Yu, Director, Research Division IX, Taiwan Institute of Economic Research

The People’s Bank of China (PBOC) released the “Payment service guide for overseas visitors to China” on March 18, 2024, which is another step forward in the promotion of digital RMB. In view of the fact that China has been actively promoting digital RMB and its progress is ahead of other major economies in the world, and that it has further opened up the use of digital RMB to foreigners after the pilot program, this article is intended to analyze the history of digital RMB in China, the result of its pilot program implementations, and its future trend.

According to former PBOC governor Yi Gang, as of June 2023, the transaction volume of digital RMB in China reached RMB1.8 trillion (approximately US$249.33 billion), much higher than the RMB100 billion transaction volume in August 2022. The digital currency in circulation has reached RMB16.5 billion, the total number of digital RMB transactions has reached 950 million, and the number of electronic wallets has reached 120 million. The total number of digital RMB transactions has reached 950 million, and the number of electronic wallets being set up has reached 120 million. What is more, the circulating digital RMB accounts for only 0.16% of the cash circulation in China, and since it is still at the pilot stage, it is evident that the potential growth of digital RMB transactions is not be underestimated after future nationwide implementation. Overall, the results of the current digital RMB pilot program are achieved in the following areas.

Expanding and diversifying the scope of the pilot program: Since the PBOC started the digital RMB pilot program in 2020 in Shenzhen, Chengdu, Suzhou, Xiong'an New Area, and at the Beijing Winter Olympic Games, the program has expanded to 26 pilot areas in 17 provinces and cities. These areas include Beijing, Tianjin, Hebei Province, Dalian, Shanghai, Jiangsu Province, Zhejiang Province (Hangzhou, Ningbo, Wenzhou, Huzhou, Shaoxing, Jinhua,) Fujian Province (Fuzhou, Xiamen,) Shandong Province (Jinan, Qingdao,) Changsha, Guangdong Province, Guangxi Province (Nanning, Fangchenggang,) Hainan Province, Chongqing, Sichuan Province, Yunnan Province (Kunming, Xishuangbanna,) and Xi’an. Besides covering the Eastern, Central and Western regions, as well as various types of cities along the coasts and the hinterland, the pilot cities have their own characteristics, such as the level of socio-economic development, size of population, and consumption habits, which shall provide valuable and practical experience and data that can help to promote the use of digital RMB by other cities in the future.

Pilot program application scenarios meet the diversified payment needs of the public: Digital RMB not only supports the integration and interoperability with the existing payment systems, such as barcode scanning and the integration of digital RMB into payment platforms, providing the public with more payment choices and convenience, but also adds a number of innovative applications. For example, Suzhou City took the lead in the application of powerless and network-less cell phone payment in transportation, was the first to implement the “Housing Provident Fund Digital RMB Scene Application Standard (Trial)” and then expanded it to other pilot areas, and was the leader in incorporating smart contracts into loans for agriculture and personal consumption; Qingdao City combined the Industrial Internet of Things platform with the application of digital currency; and Changshu City used digital RMB to disburse civil servants’ payrolls. The application scenarios in the pilot program gradually cover areas such as daily payment, food and beverage services, transportation, shopping and government services, to meet the diversified payment needs of the public.

Completion of innovative digital RMB pilot cross-border application: Shenzhen, as one of the first digital RMB pilot cities, has been cooperating with Hong Kong to carry out early and pilot implementation of cross-border application scenarios. For example, in 2023, Shenzhen and Hong Kong twice launched the Digital RMB Cross-border Shopping Festival, in which customers from the Mainland can make purchases in digital RMB at over 200 offline merchants in Hong Kong that accept digital RMB; and in December 2023, Shenzhen and Hong Kong launched the trial of cross-border transactions of digital RMB for enterprises, in which the first cross-border transaction of digital RMB in bulk commodities was completed through the opening of a digital RMB wallet to pay for the cost of imported iron ores. In addition, on December 22, 2023, Bank of China (BOC) Hong Kong, in collaboration with the BOC and the Shanghai Gold Exchange, completed the first cross-border gold transaction settled in digital RMB. Looking ahead, the Shenzhen Municipality mentioned that it will soon realize the interoperability between Shenzhen and Hong Kong customers using digital RMB wallets, i.e., Shenzhen digital RMB wallet customers can spend at Hong Kong merchants with digital RMB, and Hong Kong citizens can set up digital RMB wallets and realize digital RMB spending in Shenzhen; it is also expected to realize the digital RMB payment on the shuttle buses at border control points and realize dual offline payment through NFC on mobile phones, which solves the problem of payment for Hong Kong people in a network-less environment.

Continuous growth in number of users and scale: Recently, the pilot regions have published the results related to the use of digital RMB in 2023, and the inclusion of foreign visitors shows the potential of continuous growth of user scale. For example, by 2023, Shenzhen have 37,339,300 digital RMB wallets being set up, representing an increase of 36.2% compared to that of 2022, and the cumulative amount in circulation is RMB 84,034 million, representing an annual growth rate of 123.0%; and Fujian have 8,538,900 digital RMB wallets being set up by 2023, with the number of transactions (including exchanges, transfers, and spending) amounting to 85,319,800, the transaction amount is be RMB351.36 billion, representing an annual growth rate of 27.56%, and the number of digital RMB payment merchant outlets is 442,800, representing an annual growth rate of 76.21%. Digital RMB users include not Chinese but also foreign nationals. Digital RMB supports overseas VISA, MasterCard and wallet association for wallet top-up or pay-as-you-go, and supports FPS service for Hong Kong users. On March 18, 2024, the PBOC released the overseas version of the Digital RMB App (e-CNY App), which enables users from more than 210 countries and regions around the world to easily register and set up their own digital wallets, without the need to have a local bank account in China, which is expected to further increase the number of users.

Building on the matured payment systems like WeChat and Alipay in China, digital RMB is now undergoing continuous trial in various pilot programs and application scenarios, and there are many examples of domestic payment innovations that can be utilized for reference, the digital RMB can quickly draw on the innovative technology and promotional experience of diversified payments, and its continuous growth is to be expected. Taking the overseas version of e-CNY APP for foreigners as an example, WeChat Pay and Alipay have been supporting the bundling of international bankcards to make purchases in China without the need for mobile phone bonding since the second half of 2023, which serves as a good reference for the promotion of e-CNY APP.

Other than the innovative use of domestic payment, the future application of digital RMB should focus on the innovation of cross-border payment. Shenzhen, as one of the first pilot programs, is testing the possibility of cross-border payments with Hong Kong, which will serve as an important reference for future digital RMB cross-border payments. From the aforementioned case of Shenzhen’s completion of digital RMB settlement of bulk commodities and gold transactions at the end of last year, we can see that the overseas payment and settlement of digital RMB in the future will be more convenient, reliable, and sophisticated, and that in cross-border payment, on one hand, it can increase the function of digital RMB as a currency intermediary, and on the other hand, it can simultaneously reduce the use of US dollars in cross-border payment in China.

In light of the financial sanctions imposed on Russia after the Russo-Ukrainian War, and with the ongoing US-China competition, the expansion of digital RMB cross-border payments will gradually reduce the possibility of being subject to the US dollar-based SWIFT payment system. In addition to successful RMB settlements with countries along the Belt and Road and the BRICS countries, PBOC Governor Pan Gongsheng’s initiative to promote currency swaps in Asia at the 2024 Boao Forum for Asia 2024 is also relevant to the expansion of digital RMB. With the deepening of economic integration in Asia, the demand for local currency settlements in Asia is also on the rise, and the scale of bilateral currency swaps in Asia is also expanding, which not only effectively promotes cross-border trade and investment, but also reduces the reliance on the US dollar in each country. At present, the PBOC has signed bilateral currency swap agreements with the central banks or monetary authorities of 29 countries and regions, with the total size of currency swaps exceeding RMB 4 trillion (about US$553.49 billion). The RMB is expected to gradually assume a role in international trade and exchange of currencies, thus promoting the internationalization of the RMB.

Finally, although the digital RMB will move toward expanding cross-border payments and will have the effect of promoting the internationalization of the RMB, it is unlikely that the promotion of the digital RMB will shake the hegemony of the US dollar in the short- to medium-term, given that the RMB’s share of the international payment system is still far less than that of the US dollar and other major international currencies. In response to the call by members of the US Congress to accelerate research on the issuance of digital dollars, the Federal Reserve Board of Governors has recently revealed that despite the wave of central bank digital currencies promoted by various countries, it is difficult to challenge the US dollar’s position as the unit of international monetary accounts and the store of value, even if one or more large economies promote central bank digital currencies. It is because challenging the US dollar’s position will require the provision of an attractive market for assets and liquidity, rather than relying on technological solutions.

Looking ahead, the innovation of cross-border payment of digital RMB is the key point, among which the pilot program and application scenario in Shenzhen deserves continuous attention. By expanding the promotion of cross-border payment of digital RMB with the Belt and Road countries, BRICS countries, and Asian countries, digital RMB can play a role in the exchange of local currencies, which can not only gradually reduce the reliance on the SWIFT payment system, but also promote the RMB internationalization in the long run.

Translated to English by Chen Cheng-Yi