Yesterday several Chinese news outlets, including those controlled by the state, said that some can now use the Chinese central bank digital currency (CBDC), the digital yuan, within the Alipay app. Alipay is the largest digital payments wallet with more than a billion users. Although the e-CNY functionality is not available to all, it is enabled for a significant minority of Alipay users while the digital currency is still in its pilot phase.
Despite there being an anonymous version of the CBDC wallet, it appears it will be a poor substitute as a replacement for digital cash because of its limited functionality, as explained later.
In April, we reported that China had significantly expanded the number of users and pilot locations for the digital currency or DC/EP from four to ten cities plus the Winter Olympics locations.
To date, the six state-owned banks were the only ones to provide the wallets. Ant-owned Alipay and sister company MyBank are now live, and Tencent associate WeBank appears as coming soon. Hence these are the first non state-owned wallets to go live.
According to a report by China Business News, to add the digital currency, it’s not possible to use the existing bank account link with Alipay. Instead, a bank account has to be directly enabled for the digital yuan.
Anonymous wallets have limited utility
The digital currency has various types of wallets depending on the level of identity verification. Within Alipay, the anonymous version can only be used for retail transactions and cannot be used for P2P transfers. We’re guessing this is to prevent its use for nefarious purposes. In theory, retail transactions are at least partially traceable because the retailer has a log of the transactions. However, to transfer money to another person requires identification, which means if physical cash disappears, every person-to-person payment will be logged. These privacy issues are the biggest threat to the adoption of CBDCs, not just in China but worldwide.
Meanwhile, both the Alipay and the WeChat Pay wallets support offline payments for the digital currency.
Alipay is an associate of Alibaba, and three of Alibaba’s food-related apps are now available as sub wallets within the digital RMB app. These are food delivery service ele.me, Hema Fresh and the Tmall Supermarket. Sub wallets are intended to ringfence access to personal data to reduce the amount of personal data that e-commerce outlets can glean from payments.
Separately, yesterday Norwegian firm IDEX Biometrics announced it had entered into an agreement with Chutian Dragon for the creation of fingerprint-enabled cards to support the DC/EP.