Yesterday, the Industrial and Commercial Bank of China (ICBC), the world’s largest bank, announced the launch of its digital yuan Smart Exchange service, which automatically sweeps money between a user’s bank account and China’s central bank digital currency (CBDC), and vice versa.
For a moment, consider conventional bank accounts. It’s pretty common to have excess balances on current accounts automatically transferred into a savings account without having to monitor the account. ICBC’s Smart Exchange service offers a similar solution for the digital yuan.
A key design choice of some CBDCs is not to be interest-bearing to avoid competing with commercial banks. This deliberately makes it less attractive to hold digital yuan over traditional cash deposits in a bank account.
However, given the lack of interest payment and the inconvenience of constantly transferring money to and from the CBDC wallet, some people might only use digital yuan wallets for small retail transactions, constraining the potential growth of the CBDC.
ICBC’s Smart Exchange service offers three automated functions. It can automatically convert the CBDC balance above a certain amount from the digital yuan wallet into a bank deposit. Alternatively, it can transfer fixed amounts from the wallet to the bank account on a regular basis.
If the digital yuan balance is always kept small, then there may be insufficient funds when it comes to making a payment. For that scenario, the wallet can use the existing digital yuan balance and automatically convert any shortfall from their bank account balance into digital yuan.
The combination of functionality should help users to avoid losing out on interest and still make it convenient to use the digital yuan for payments. For now, this functionality is available through ICBC’s mobile app.
Meanwhile, last week a number of state-owned banks launched innovations in their digital yuan wallets. In collaboration with ICBC, the Chinese e-commerce giant JD.com launched their Easy Enterprise Payment, an application providing digital yuan services for B2B scenarios. China Telecom and Bank of China launched their CBDC wallet via China Telecom’s Yipay App.