China's Central Bank Digital Currency (CBDC), referred to as e-CNY or the digital yuan, has found limited adoption among the masses since its launch in 2019, despite significant efforts by the Chinese government to promote its use. A substantial portion of the Chinese population uses mobile-based payments and favours existing payment applications for their transactions. The widespread use of these platforms creates a disincentive for both consumers and merchants to switch to a new digital currency, due to an absence of additional benefits. Concerns about heightened surveillance by the Chinese government have further compounded resistance to adoption. The China example serves as a pertinent case study for the upcoming launch of India’s digital currency, the e-Rupee. With comparable levels of digital payment adoption, the Chinese CBDC pilot highlights the importance of assessing consumer preferences and motivations, before introducing a new technology.
China’s Central Bank Digital Currency (CBDC), known as e-CNY or the digital yuan, is the electronic equivalent of the Chinese fiat currency, Renminbi (RMB) or Chinese yuan.[1] Issued by the People’s Bank of China (PBOC), this digital currency has witnessed limited adoption by the public since its launch in 2019, despite a government push to increase its use by the Chinese populace.[2]
For the past two years, the Chinese government has been distributing this digital currency through lotteries, promotions, discounts, and even free handouts to encourage adoption.[3] During the e-CNY pilot phase in 2022, lotteries alone accounted for a total giveaway of RMB 340 million (USD 50.47 million).[4] State level authorities have also deployed their own strategies. For instance, in the city of Suzhou, the government distributed 250,000 e-CNY “red packets”, digital versions of traditional money gift envelopes, worth RMB 50 million during the Chinese New Year celebrations in 2021, as a campaign to promote adoption.[5]
Despite these promotional schemes, the e-CNY has failed to gain popularity among the Chinese masses. As of December 2021, the digital currency had registered about 261 million users, in terms of unique wallets[6], whereas mobile phone penetration in China was at 1.6 billion, with 86.7 percent being 4G or 5G users.[7] This shows that a high percentage of the Chinese population uses smartphones and consumes data on-the-go, but only a fifth of the mobile phone users in China have downloaded the e-CNY wallet. Further, in 2019, 86 percent of the Chinese population was using mobile phone payments[8], which shows the prevalence of mobile phone-based payments in the country.
Not only were the number of e-CNY users low, the value of transactions was also not very high. The 261 million e-CNY wallets held a total of RMB 13.61 billion (USD 1.9 billion) in value, which accounted for only 0.13 percent of the total central bank reserves and cash in circulation in China.[9]
A key driver of this low adoption is a lack of incentives for users to switch existing digital payment methods. While lotteries and promotions can entice users to download and use the e-CNY wallet, such strategies do not sustain beyond the promotion period or ensure user retention.[10] Users revert to their preferred payment methods, which not only provide similar financial incentives but also offer the additional benefits of trust, security and a larger network of users.[11]
People in China are accustomed to existing payment apps, i.e. Alipay and WeChat Pay, which are widely accepted by merchants, offer a range of services from retail to medical, and ensure convenience and efficiency.[12] Transitioning to a new digital currency requires overcoming user inertia and providing additional value beyond current payment systems.
Recognising the challenge of insufficient incentives, the Chinese government has leveraged its network of state-owned banks, and exerted influence on private players, Alibaba and Tencent, parent companies of Alipay and WeChat Pay, to incorporate the digital currency into their payment systems.[13] While this may reduce friction to adopt the e-CNY from an institutional perspective, it does not necessarily guarantee an uptake from users. For that to happen, the Chinese government needs to educate its citizens on the benefits of using e-CNY and how it surpasses traditional payment methods. The same holds true for local businesses, who have no incentive to add the e-CNY wallets as an additional payment option.[14]
There are also concerns about privacy and surveillance related to e-CNY. Users fear that it could be used as yet another tool by the Chinese government to gather information on its citizens.[15] This is despite assurances from the PBOC regarding anonymity of users over small value transactions, and traceability for larger sums.[16] Addressing these concerns is pivotal for the Chinese government to elevate adoption levels.
The e-CNY example serves as an important case study for the imminent rollout of e-Rupee in India, which is facing similar design and implementation challenges. Given the comparable levels of digital payments in the two countries,[17] India may face similar challenges due to a lack of incentives, particularly against established systems like the Unified Payment Interface (UPI), National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) payment method. Indian regulators must prioritise user incentives and facilitate seamless integration with existing payment systems.
In this regard, the RBI can form its approach by conducting user surveys. Incorporating short online surveys into ongoing pilot studies will enable a deeper understanding of customers' pain-points when engaging with digital payment methods. This will help with design considerations for the e-Rupee. An extensive educational campaign will also be vital for building public trust, and help people understand use cases of the new digital currency. The RBI can collaborate with popular fintech firms, such as PayTM, Google Pay, BharatPe, PhonePe etc. to launch promotional campaigns. This will help create ecosystem synergies, and ensure seamless adoption of India's digital currency.
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[1] “Yuan vs. Renminbi: What's the Difference?” investopedia.com
[2] Orcutt (Aug, 2023). “What’s next for China’s digital currency?” MIT Technology Review.
[3] Elston (2023). “China is Doubling Down on its Digital Currency”. Foreign Policy Research Institute (FPRI).
[4] Ibid. Elston (2023).
[5] South China Morning Post (2023). “China’s ambitious e-CNY plan faces a giant hurdle: winning over 1 billion consumers at home”.
[6]Ibid. Mu (n.d.); Wired (2022).
[7] China Internet Network Information Center (CNNIC), Ministry of Industry and Information Technology, China. (Jan, 2022).
[8] Ibid. Fullerton et al (2022). ADB Discussion Paper.
[9] Ibid. Orcutt (2023).
[10] Ibid. Elston (2023).
[11] Hofman-Kohlmeyer, Magdalena. (2016). Customer Loyalty Program As A Tool Of Customer Retention: Literature Review. CBU International Conference Proceedings. 4. 199; Tang, S., Wu, Z., Zhang, X., Wang, G., Ma, X., Zheng, H., & Zhao, B. Y. (2019). Towards understanding the adoption and social experience of digital wallet systems. In T. X. Bui (Ed.), Proceedings of the 52nd Annual Hawaii International Conference on System Sciences, HICSS 2019 (pp. 5093-5102). (Proceedings of the Annual Hawaii International Conference on System Sciences; Vol. 2019-January). IEEE Computer Society.
[12] Ibid. South China Morning Post (2023).
[13] Ibid. Elston (2023).
[14] Ibid. South China Morning Post (2023).
[15] Ibid. Orcutt (2023).
[16] Digital Currency Research Institute, PBOC (n.d.).
[17] India recorded 89.5 million digital payment transactions in 2022 (Business Standard), which is comparable to China’s 1.2 billion digital payment transactions in 2019.