The People’s Bank of China has issued 20 million units of the digital renminbi via state-owned banks. It is promoting wallets that use its “DCEP”, or decentralized currency/electronic payment technology.
The PBoC’s goals are to improve security of China’s payments system, support the digitization of banking services, and help internationalize the currency.
DigFin intern Joyce Gao Zhuo wanted to find out what some of her peers thought of this experiment. This is what she found out.
Going cashless?
The PBoC intends the use of eRMB wallets to lead to a cashless society. It will make the banking system more efficient and cheaper to use. Although many people and businesses already transact online, a DCEP allows people to make peer-to-peer transactions at even lower service fees, even when there is no internet connection.
For many users, though, the initial benefit has been free money. For example, one merchant involved in the pilot, Beijing-based Wangfujing Ice and Snow Shopping Festival, ran a lottery for free digital red envelopes with eRMB.
Nina Wu, a university student in Tianjin, participated. “I am willing to accept and try to use digital RMB, given the benefits and subsidies [in the trial phase],” she said. “It’s not commonly used yet, but I am optimistic, because digital RMB is a legal currency with government credit guarantees.”
Versus Alipay and WeChat Pay
One reason the PBoC is keen on a digital RMB is because it is regarded as a way to safeguard the stability of the payments and financial systems – a point not lost on some students.
“Digital RMB will decrease the systemic risk if a commercial online payment company went bankrupt,” said Zhang Shuo, a student at the University of Hong Kong.
The PBoC is also promoting a digital currency as providing users with more privacy than the corporate payment rails of Alipay and WeChat Pay. Banks are not allowed to release transaction data to any e-commerce platform or company, although the central bank can access information as it pleases. The PBoC says this arrangement allows it to protect users’ privacy and security rights, for example by scanning for illegal activities like tax evasion.
Some students are skeptical about how this will work. “I don’t think an app controlled by the government can achieve complete privacy protection,” said a student who requested anonymity. But this person’s hesitancy about the eRMB was grounded in services, rather than issues around the currency itself: “I may still use WeChat Pay because its ancillary functions are convenient for daily life.”
This view was echoed by another student, Vana Wei, who’s studying at Hong Kong University. “I don’t think information security is a key factor for consumers, but convenience is. Data privacy is intangible to most people, who don’t know whether their information will be released or where it it could be leaked.”
A third student said, “The deposits in WeChat Pay and Alipay can be converted into cash or stored in investment projects, while the small amount of money remaining in the digital RMB wallet may be a waste.”
Other features
For the policy wonks at the PBoC, one advantage of a digital RMB is it can help the central bank monitor risks and improve its monetary policies, such as tweaking reserve ratios or other banking rules. The government can also use it as a mechanism to conduct fiscal policy, such as issuing transfers or paying benefits to citizens.
Such technical aspects didn’t come up in conversation with students. But young people are aware of the project and may support it for different reasons, with the COVID-19 experience changing people’s perceptions of handling cash.
“I believe the digital RMB will be a trend given its advantages in hygiene and its environmental aspects,” said Liu Ying, a student at Hong Kong Baptist University.
Internationalization
The PBoC’s final big hope for the digital RMB is to use it as a way to create a new ecosystem overseas. The renminbi accounts for only 2.3 percent of central bank reserves globally, versus 59 percent for the US dollar. When it comes to cross-border trade, 63 percent of transactions settle in dollars. While China is not attempting to change the status quo directly, it is hoping to create a separate space in which cross-border investments and trade all operate on super-efficient eRMB rails.
Students are aware of this ambition. Zhang, the HKU student, said, “It could challenge SWIFT’s American-European centric trading system.”
Joyce Gao Zhuo contributed to this story.
