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The e-CNY: Implications for the Future of Digital China

15 Mar 2023
By Dr Benjamin Green
Photo of the bank of China. Source:

Alongside the promulgation of a radical new plan for the development of a “Digital China,” China’s domestic governance institutions are undergoing changes that include a vision for big data-driven financial oversight. At the crossroads of these two developments lies the e-CNY, a sovereign digital currency that many believe will have profound implications for the future of China’s digital economy.

On 27 February 2023, the Central Committee of the Communist Party of China (CPC) and the State Council released the “Overall Layout Plan for Digital China Construction” – a roadmap for “Chinese modernization in the digital age.” The plan stresses that empowering, improving, and growing the digital economy through deep integration with the “real economy” is key for accelerating internationally competitive digital advancement across all sectors of Chinese society. Given these aims, it may be argued that this plan will give full play to the continued development, promotion, and incorporation of the e-CNY (digital Yuan/digital RMB) within the evolving financial architecture of Digital China.

The e-CNY

The e-CNY is a Digital Currency/Electronic Payment (DC/EP) issued by China’s central bank, the People’s Bank of China (PBOC). It is an M0 fiat currency in digital form that uses a centralised process rather than blockchain to provide the central government with the capacity to control, monitor, and trace individual, corporate, and institutional financial transactions. The e-CNY was first brought into development within China through the launch of a DC/EP research project in 2014 that aimed to partially digitise China’s monetary base. Specifically, the PBOC set up a 2014 task force aimed at the development and issuance of a digital fiat currency that could be issued by the PBOC and circulated both domestically and internationally by authorised state-owned banks and financial institutions. This was followed by both the creation of the PBOC’s Digital Currency Research Institute (DCRI) in 2016, and the 2017 approval by China’s State Council to develop the e-CNY in collaboration with major Chinese Banks. Overall, the e-CNY may be said to support two clear domestic aims; the increased traceability and oversight of digital transactions; and, the recentralisation of monetary authority from third party vendor monopolies.

Traceability and Oversight

The rapid growth of mobile and electronic payments is viewed as an important engine for China’s continued economic growth. According to a 2022 white paper issued by China’s State Council Information Office titled “Jointly Build a Community with Shared Future in Cyberspace,” by 2021, China’s digital economy had reached 45.5 trillion yuan, accounting for 39.8 percent of China’s GDP, with digital payments totaling 66 percent of domestic financial transactions in 2019. Given this figure, China’s central government has positioned the e-CNY as a means to provide increased regulatory oversight of the domestic economy through data-driven traceability of financial transactions. Oversight and traceability of the e-CNY is accomplished through a two-tiered centralised process of issuance (PBOC) and oversight, distributed among various data centres that will now (ostensibly) be consolidated within its recently institutionalised National Data Bureau. Given this understanding, concerns have arisen relating to issues of data privacy and protection for individual users. To allay these fears, the PBOC has promised that the e-CNY will operate on a platform of “managed anonymity” that is committed to the safeguarding of individual data privacy. This managed anonymity is described as functioning through individual transactions (withdrawal/deposits into digital wallets) that are not tracked by individual institutions, while simultaneously remaining visible and monitored by the PBOC – in possession of sole discretionary authority to share that information. Given preexisting regulatory requirements for corporate and institutional financial reporting, proponents of this approach argue that discussions surrounding anonymity of financial transactions should centre within an international regulatory discourse aimed at striking a balance between “personal privacy and cracking down on illegal activities.” Given the recent shakeup of China’s regulatory bodies, it is yet unclear how this balance between traceability, oversight, and data privacy will be substantively institutionalised for individual users of the e-CNY.

Recentralisation of Monetary Authority

Enjoying singular success across all national contexts, China’s third party vendors have both revitalised and revolutionised China’s digital economy. Through the application and development of innovative fintech advancements, vendors like Alipay and WeChat have brought unparalleled transactional convenience and widespread financial inclusion to millions of China’s domestic consumers. Notwithstanding, with a combined 95 percent market share of digital transactions, the monopoly held by these two third party vendors has weakened the transactional predominance of the RMB within China’s domestic digital economy, limiting Beijing’s overall ability to retain centralised, sovereign control over its domestic economy. Specifically, this duopoly has both weakened the PBOC’s capacity to direct macro-structural monetary policy, as well as hindered the monitoring of monetary policy effectiveness in real time. While previous assertions argue that the e-CNY was “conceived as a way to curb the big mobile money providers,” in 2021, Zhou Xiaochuan, former head of the PBOC, made it clear that the e-CNY was developed in support of rather than in opposition to third party vendors. Despite the stated position that the e-CNY was conceived as a redundancy, a back-up in case of unforeseen technological failings or information security risks encountered by the abovementioned duopoly, previous accounts have highlighted Beijing’s “intention to undercut the duo’s dominance.” Regardless of its initial intent, the recent integration of the e-CNY digital wallet within the Alipay and WeChat mobile platforms represents a measured approach by the PBOC towards digital integration rather than a complete disruption of the existing Alipay/WeChat digital market duopoly. The following may highlight the PBOC’s rationale for the adaptation of such an approach. Despite national efforts to attract new users, as well as prompt post-COVID-19 domestic consumption through the giving away of millions of e-CNY to domestic users over the past holidays, by December, usage remained relatively stagnant. By January 2023, the PBOC released a report that confirmed a relatively low uptick in usage, with circulation of its digital currency reaching only two billion worth of e-CNY – a paltry 0.13 percent of total PBOC reserves.

Given its middling contribution towards the abovementioned aims, it remains doubtful how impactful the e-CNY will be toward the future development of Digital China. Specifically, as concerns traceability and oversight, while the curtailing of illicit financial transactions is a laudable goal, data privacy issues remain an important concern for individual users. As concerns the disruption of Alipay and WeChat’s digital market duopoly, it’s inclusion as an alternative payment method within these two mobile platforms highlights its current relegation to third-tier status within China’s digital economy.

Benjamin Green, Ph.D., is an Assistant Professor in the College of Teacher Education at Beijing Language and Culture University. His recent works have focused on US-China relations, educational governance, digital nationalism, critical cosmopolitanism, and Chinese Internationalism as a contested project of alternative modernity;

This article is published under a Creative Commons License and may be republished with attribution.