Does China Have a Digital Currency? Yes, Here’s the Details

China has developed and launched its own digital currency, the e-CNY, also known as the Digital Currency Electronic Payment (DCEP). This digital form of national currency, issued by the People’s Bank of China (PBOC), represents a departure from traditional payment methods. It aims to modernize the country’s financial infrastructure and enhance payment efficiency and accessibility for its large population.

Understanding China’s Digital Currency

The e-CNY functions as a Central Bank Digital Currency (CBDC), issued and fully backed by the People’s Bank of China. This direct backing by the central bank establishes it as legal tender, holding the same value as the physical renminbi. Unlike decentralized cryptocurrencies, the e-CNY is a centralized digital asset, maintaining a stable value under PBOC control. This structure ensures its stability, contrasting sharply with the volatile market prices seen in private digital currencies.

The official nomenclature for this digital currency includes e-CNY and Digital Currency Electronic Payment (DCEP). As a direct liability of the central bank, it is classified as part of the monetary base (M0), akin to physical banknotes and coins. It represents a digitized version of the renminbi, designed to circulate as digital cash.

The e-CNY utilizes distributed ledger technology but is not built on a public, permissionless blockchain. Its system is centrally maintained by the PBOC, which oversees its issuance and management. This centralized control allows for faster, more efficient transactions without constant intermediaries.

A notable characteristic is its “controllable anonymity” feature. This allows for anonymity in small, routine transactions, similar to physical cash. However, the system can trace larger or suspicious transactions, aiding in combating illicit activities like money laundering. This balances user privacy for everyday spending with regulatory oversight.

Distinctions from Other Digital Payments

The e-CNY stands apart from other digital payment methods, particularly private digital payment platforms and decentralized cryptocurrencies. Understanding these distinctions is important for grasping the unique position of China’s digital currency within the broader financial landscape. The fundamental difference lies in its issuer and the nature of the funds it represents.

Private digital payment platforms like Alipay and WeChat Pay facilitate transactions using funds held in commercial bank accounts. Users instruct a private company to transfer funds from their bank account. In contrast, the e-CNY is digital cash issued directly by the People’s Bank of China, making it a direct central bank liability. Alipay and WeChat Pay are payment rails built on the existing banking system, while the e-CNY is a new form of currency itself.

Private platforms require users to link accounts to traditional bank accounts, with transactions processed through the commercial banking system. The e-CNY operates on a two-tier system: the PBOC issues it to commercial banks, which then distribute it. While e-CNY wallets can link to bank accounts, the digital yuan functions like digital cash, bypassing the need for a traditional bank account for basic transactions.

Compared to cryptocurrencies, the e-CNY exhibits fundamental design differences. Cryptocurrencies are decentralized, operating on public blockchains maintained by a distributed network. This decentralization often leads to price volatility, as their value lacks central bank backing. The e-CNY, conversely, is centralized, issued and controlled by the People’s Bank of China, ensuring its stability and pegging its value to the renminbi.

Cryptocurrencies often offer pseudonymity or anonymity on public blockchains, where transactions are recorded but user identities are not directly linked. The e-CNY’s “controllable anonymity” allows privacy for small transactions while retaining the central bank’s ability to monitor larger or suspicious activities for regulatory purposes. While leveraging distributed ledger principles, the e-CNY does not rely on a public, permissionless blockchain, allowing for greater central bank control and scalability.

Current Implementation and Usage

The e-CNY has been progressively rolled out through extensive pilot programs across various regions in China, rather than a nationwide launch. Trials began in 2020 in four cities: Shenzhen, Suzhou, Xiong’an, and Chengdu. The pilot scope has since expanded to include cities like Beijing, Shanghai, and Guangzhou, encompassing a wide range of economic activities. These pilot areas serve as testing grounds to assess the digital currency’s functionality, adoption rates, and impact on the existing financial ecosystem.

Currently, the e-CNY is accessible to residents and visitors within designated pilot areas. Individuals can obtain and use it by downloading the official e-CNY application to set up a digital wallet. Wallets can be funded by linking to commercial bank accounts or converting physical cash. Payments often mirror existing mobile payment habits, primarily through scanning QR codes at points of sale.

The range of e-CNY use cases has broadened within pilot regions. It is accepted for diverse retail transactions, from daily purchases to online shopping. Beyond retail, it is integrated into public services like transportation, allowing users to pay for bus and subway fares. Some government and state-owned company employees in pilot areas have received salary payments in e-CNY.

Despite ongoing expansion, the e-CNY remains in a testing and development phase. By May 2024, digital yuan transactions reached approximately 6.6 trillion yuan ($910 billion USD). While substantial, this is a fraction of China’s total digital payment market, dominated by Alipay and WeChat Pay. The People’s Bank of China continues to refine the system and explore new applications, including cross-border payment functionalities.