People’s Bank of China to use digital yuan for retail CBDC transactions

Getting your Trinity Audio player ready...

As China’s digital yuan nears a full-scale rollout, the central bank is racing to incorporate a range of functionalities to enable it to compete favorably with existing payment options.

Head of digital currency research at the People’s Bank of China (PBoC) Changchun Mu confirmed at a trade forum that the banking regulator is eyeing multiple use cases for the digital yuan. Specifically, the central bank is pushing for the digital yuan to be available across all retail payment scenarios.

Currently, the central bank digital currency (CBDC) has seen retail action across several sectors, including transportation and e-commerce but appears limited in its scope, unlike payment alternatives like Alipay and WeChat Pay.

“First thing to be upgraded is the payment tool used in retail scenarios, that is, digital renminbi is used as the payment tool in all retail scenarios,” said Mu.

Furthermore, the central bank executive clarified that the CBDC will not be limited by the size of payments, noting that retail payments can also involve large sums.

“Some people now believe that the retail scene means that the digital renminbi can only be used for small payments and cannot be used for large payments,” added Mu.

Mu confirmed that in the coming weeks, the PBoC will unify QR code standards to achieve interoperability for barcodes as part of the first set of steps to improve the retail usage of the digital yuan. Currently, private payment providers control a large chunk of QR payments in Mainland China, leaving the PBoC with a stiff task ahead.

As part of plans to improve retail use, the PBoC disclosed new plans to roll out new regulatory standards for digital yuan wallet providers, commercial bank mobile apps, and third-party payment institutions interacting with the CBDCs.

The service providers will be mandated to obtain required financial licensing, have compliance awareness, and be subjected to regulatory supervision to ensure a seamless mainstream adoption of the digital yuan.

China has been experimenting with the feasibility of a retail CBDC since the start of 2019, launching a pilot across multiple provinces. Despite a spirited effort from the central bank, pundits opine that the digital yuan has a steep mountain to climb to achieve widespread adoption from residents.

Integration with wholesale transactions

The digital yuan could debut in wholesale transactions between commercial banks in China after Mu hinted at an upgrade in the coming months. The PBoC executive noted that it will be possible to make wholesale payments interoperable with the digital yuan but says a total replacement of systems is out of the question.

“In order to avoid the waste of existing systems and resources, there is no need to replace it with the central bank’s digital currency system,” told Mu.

He added that the current wholesale settlement system can support intra-bank transactions without considerable delays or absurd transaction fees.

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.

Watch: CBDCs and BSV