The Banking Executive Magazine - January 2022 Issue

China Launches its Digital Yuan Cryptocurrency tem. Under the central bank’s direc- tion, the six biggest commercial banks, all government-owned, will distribute digital yuan to smaller banks and to app providers Alipay and WeChat, which are expected to manage sender-recipient interac- tions. Unlike electronic transactions, the digital yuan is designed to remove a way banks and financial apps profit off fees and brief built-in delays in such handoffs. The only necessary middleman is the central bank. Be- cause it is state-backed, the digital yuan reduces risks to the financial system posed by China’s dominant payment platforms that are private companies. For Beijing’s Winter Olympics in February, authorities are expected to give visiting athletes digital yuan to spend while they are in the spotlight. DIGITAL YUAN MOBILE WALLET APP On THE 4th of January 2022, Thom- son Reuters Trust Principles an- nounced that China central bank launched digital yuan wallet apps for Android and iOS. The e-CNY app, developed by the People's Bank of China's (PBOC) digital currency research institute, was available for download on Chi- nese Android and Apple app stores in Shanghai. China Central Bank announced that China will continue to advance the development of its central bank dig- ital currency and improve its design and usage, including increasing its interoperability with existing pay- ment tools. The wallet app for the digital yuan is a push to expand usage to more peo- ple. Now everyone can download the app, highlighting how China is trying to get more people to use the digital currency. In China, an enormous share of digi- tal payments is already being han- dled by private-sector mobile wallets like Alipay and WeChat Pay, whose level of control is already a concern for Beijing. the e-CNY app will face competition from China’s two domi- nant digital payment apps Ant Group’s Alipay and Tencent’s WeChat. DIGITAL YUAN GOAL In designing and promoting sover- eign virtual money, China’s govern- ment has three major goals, apart from being at the forefront of deploy- ing a digital currency. 1. to gain greater insight into how money is flowing in the country and to improve monetary policy and also to prevent illicit activi- ties, including money laundering. 2. to regain control over payments that are increasingly mediated by private firms such as Ant Group’s Alipay and Tencent’s WeChat Pay. 3. to eventually boost the yuan’s in- ternational standing. The digital yuan wallet could com- pete with the payment systems al- ready being provided by China’s tech giants. The digital yuan does not have many advantages over the existing payment tools, but may do have in the future. The digital yuan incorporates a key function that could make it more at- tractive, especially among rural users. People can transact with it even if they’re not connected to the internet, simply by tapping two digi- tal-yuan-enabled phones together. CHINA DIGITAL CURRENCY STRATEGY Forbes experts see that digital yuan offers better data for the PBOC (China’s central bank) and other gov- ernment bodies. The more the digital currency is used, the more the gov- ernment has instant awareness of purchases and transfers, even know- ing the geographic location of activ- ities. A digital yuan also means greater consumer efficiencies and analytics and greater ability to mon- itor. The Chinese government be- lieves in control, so this should not be a surprise. A digital yuan can be used to steer people away from other digital currencies and bitcoin vari- ants. This control could be equally used to counter money laundering and other illegal activities. It could disintermediate other payment mechanisms. The introduction of a digital yuan will bring benefits to Chinese consumers and society, and facilitate government data collection and monitoring. The digital yuan is trackable, adding another tool to China’s heavy state surveillance. The government de- ploys hundreds of millions of facial- recognition cameras to monitor its population, sometimes using them to levy fines. While China has not pub- lished final legislation for the pro- gram, the central bank may initially impose limits on how much digital yuan individuals can keep, as a way to control how it circulates and pro- vide users a dose of security and pri- vacy. China’s central bank will not use the new technology as a way to get more money into circulation, since every yuan issued digitally will essentially cancel one yuan circulating in phys- ical form. In issuing the digital yuan China proved that it is vigilant to threats and combatted the fears that a cryp- tocurrency could undermine govern- ment power if people began using it. China may be considered as a digital currency pioneer. Reuters news announced that China's central bank is cracking down on cryptocurrency trading, banning overseas exchanges from providing services to mainland in- vestors. In September 2021, China's central bank announced a ban on all cryp- tocurrency payments and services, ISSUE 157 JANUARY 2022 the BANKING EXECUTIVE 11