Today at the virtual SIBOS banking conference, People’s Bank of China (PBC) Deputy Governor Fan Yi Fei shared figures about the digital yuan trials. There have been more than three million transactions totaling RMB 1.1 billion ($160 million) through to late August using the central bank digital currency (CBDC). The tests included the creation of 113,300 personal digital wallets and almost 9,000 corporate wallets.
Previously there have been mixed reports about the trials being finished. The deputy governor clarified: “PBC regards digital RMB as an important financial infrastructure for the future. It has actively been carrying out research and development and pilot projects under the promise of two-tier operation, M0 substitution and controllable anonymity. The architecture, standard formulation, research & development of functionality, joint debugging and testing of e-CNY system have been completed.”
He confirmed as previously announced that ‘internal closed pilots’ were in Shenzhen, Suzhou, Xiong’an and Chengdu and will also take place during the forthcoming Winter Olympics.
Fan said 6,700 use cases had been trialed, including bill payment, catering services, transportation, shopping and consumption, government services, and others.
He also mentioned that 5,000 medical and healthcare workers in the Luohu District of Shenzhen received a red envelope or gift for their contributions towards fighting COVID-19. The money could be used at local merchants.
Cross border payments
In another part of the talk, the deputy governor discussed how CBDCs might address cross border payments. He started off by comparing Bitcoin and stablecoins to historical private mints of physical coins that lacked weight and quality standards and, hence, increased transaction costs.
“To protect fiat currency from these crypto-assets and safeguard monetary sovereignty, it is necessary for the central banks to digitize bank notes through new technologies,” said Fan.
“In cross-border payments, we could achieve interoperability and address the trilemma (low costs, low risks, high efficiencies) by using digital fiat currency, collaborating with private sectors and adapting to long-term technology evolution continuously and establish a fiat digital currency alliance that observes regulations across jurisdictions and complies with international standards, for instance PFMI (Principles for Financial Market Infrastructure).”
On the one hand, there’s no question that Fan is right about the need for standards to ensure interoperability. New CBDC standards beyond PFMI are likely needed. However, the early movers often set standards, and most central banks seem to acknowledge China’s progress here. Hence this is yet another driver for CBDC research by other countries to ensure they can influence standards and aren’t forced to adopt standard set by others because they weren’t up to speed.
And although China has a massive footprint in international trade, to date, a relatively small proportion of that trade has been denominated in RMB compared to dollars. However, after extensive Chinese attempts to change that, a shift has started. According to official Chinese statistics, in August 2019, 66% of trade receipts were denominated in U.S. dollars. The figure dropped to 58% in August this year. The numbers for payments are 60% U.S. dollars in August 2019 compared to 51% in August 2020.
One final note about interoperability of currencies using PFMI principles. Fnality, the payments infrastructure backed by numerous global banks is doing just that, but a private version where money is deposited at central banks. It’s closer to a wholesale stablecoin. But so far, it’s yet to get the go ahead from a central bank.