Banking News

Details about the digital yuan wallet officially disclosed

digital yuan currency RMB ecny

Today Mu Changchun, director of the Digital Currency Research Institute at the People’s Bank of China, shared more information about the types of digital yuan wallets currently being developed for the central bank digital currency (CBDC) or eCNY trials, as reported by Sina Finance.

Mu confirmed that for lower transaction volumes, such as total daily spending of less than RMB 5,000 ($782), it’s possible to create a digital yuan wallet with just a mobile phone number. But as the volumes increase, proof of identity and a link to a bank account are required.

He elaborated on other digital yuan wallet features.

Online vs. offline

The issue of an online connection is already a big topic for CBDC, and Visa and Japan’s central bank published papers about offline CBDCs. With digital currencies accelerating the decline of cash usage in Chinese cities, power outages are a major risk. China’s digital RMB wallet can be used offline if necessary. It’s possible to make transactions via a Bluetooth connection between two phones as opposed to WiFi.

Software vs. hardware

Encouraging a positive experience while using the digital RMB is central to its long-term take-up. Software wallets refer to mobile phone payment apps, while hardware wallets take the form of physical devices. These include wearable objects, smart debit cards and Internet of Things (IoT) devices. Being able to use the digital RMB without mobile phones is crucial to secure greater levels of engagement amongst groups such as the elderly or those that can’t afford a smartphone.

Parent vs. sub-wallets

Data privacy is a big issue for users of CBDCs, and China’s central bank is working to promote this. The main wallet holder can open several sub-wallets under the parent wallet. This feature allows people to reduce the flow of data to big tech firms that tend to aggregate data about spending patterns from multiple sources. Effectively a sub wallet that might be created for use at a particular online store has a separate identity, making it hard to associate with payments made by the same person elsewhere. 

There was some irony in a comment recently made by Mu’s predecessor, Yao Qian, on the topic of privacy. He rebutted U.S. accusations that a key purpose of the digital yuan was for the government to watch all payments in real-time. This is not a CBDC motivation because the government already has that capability, as outlined elsewhere.

Meanwhile, China is making strides in trialing its central bank digital currency (CBDC), having piloted it in over 11 regions. Mu’s speech coincides with the first day of Shanghai’s Digital RMB pilot, bringing the cumulative number of CBDC participants past the two million mark.