China’s central bank digital currency (CBDC) efforts have been advancing rapidly. The country is now testing the digital yuan—e-CNY—for use in payments of tax, stamp duty, and social security premiums.
Zhejiang, a province in Eastern China, is pioneering the effort. Zhejiang news, a local news outlet, reports that Zhejiang Provincial Taxation Bureau revealed that about three of the province’s cities, including Hangzhou, Shaoxing, and Jinhua, have been testing accepting the digital yuan for tax payments throughout April.
So far, businesses in the cities have been successfully using the digital yuan for the online completion of payment of taxes (fees) to the treasury and reconciliation. The pilot project is being carried out in collaboration with the People’s Bank of China (PBoC) branch located in the province’s capital, Hangzhou.
“The digital renminbi is very convenient and safe. By signing a tripartite agreement, we can use online banking in the office, and we can pay taxes and store them without leaving home,” one test participant told local reporters.
The PBoC, which issues the CBDC, also has more plans to stress test the digital currency. The central bankers intend to extend the pilot project to several more provinces. Some of its targets include cities in its coastal region that will host the upcoming Asian Games.
The PBoC previously tested the digital yuan during the Beijing Winter Olympics held this year. But there was a limited scope due to the COVID-19 restrictions, which kept away many spectators.
Meanwhile, the adoption of the payment solution has grown rapidly. The PBoC revealed that 10% of Chinese citizens have used the e-CNY. Last year, the system processed over $10 billion worth of transactions.
Growing e-CNY adoption raises concerns for the U.S. dollar
The growing adoption of China’s CBDC has been the subject of many concerns. Some experts have warned that the e-CNY may be able to edge out the dollars from its prime position as the global reserve currency.
Speaking with CNBC, Richard Turrin, a financial technology consultant and author, said that the e-CNY is set to challenge the usage of dollars for international trade settlements. He cites China’s extensive international trading activity to support his argument.
“Remember, China is the largest trading country and you’re going to see digital yuan slowly supplant the dollar when buying things from China,” he remarked.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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