Today the South China Morning Post (SCMP) published an article entitled, “China is paying some workers in digital yuan – but few are choosing to use it”. At first we thought it might be an audacious article. That’s because SCMP is owned by Alibaba which, along with sister company Ant, has been the target of a regulatory clampdown by the Chinese government. However, the main gist of the piece is that employees receiving salaries in the central bank digital currency (CBDC) are transferring it out of the eCNY because it doesn’t pay interest. In our view, that is a feature not a bug.
After all, most CBDCs are intended for payments, not as deposit instruments.
However, a secondary driver for converting the salary from the eCNY, is that few retail outlets accept the CBDC. That’s a more serious issue because network effects require sufficient retail outlets to support it. As with all jurisdictions with good existing payment infrastructure, it’s hard for users to justify using an alternative.
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