The Olympics and the Digital Yuan in Review
The unconnected card-style wallet poses no risk to foreign users and is critical for financial inclusion
Hardware wallet issued at the Olympics. The card enables e-CNY payments without a network connection. The card uses near field communication to connect with point of sale devices. The Visa logo is ironic as the card does not use the Visa network
The Olympics is winding down, and with it, the PBOC’s coming out party for the digital yuan. The digital yuan’s launch at the Olympics was without question a technical success, but it is unlikely that it won the hearts and minds of users. Most likely find it novel, but few were aware of its potential to change the financial system in the future.
In an Olympic game, unnecessarily stigmatized by the supposed necessity of bringing a “burner phone, the e- CNY had an uphill climb to achieve the affection bestowed upon Olympic mascot Bing Dwen Dwen. Still, the PBOC achieved its primary goal, and that was to put the world on notice that e-CNY is coming with implications that are far more profound than buying lunch or trinkets.
Olympic mascot Bing Dwen Dwen is far more popular than the e-CNY on “Google Trends”
The Good News
The e-CNY works! We can say beyond a doubt that the e-CNY systems built by the PBOC work and that the system seems user-friendly enough to meet the needs of both native Chinese working at the games and foreign guests. While that mays seem evident, it shouldn’t be taken for granted.
The PBOC’s Mu Changchun, director-general of the PBOC’s Digital Currency Research Institute, recently released user figures for the digital yuan. The e-CNY is racking up purchases of roughly 2 million yuan ($320,000) a day at the Olympics. This made the supporting systems operate at roughly 10,000 transactions per second (TPS) which is well below their design capacity of three hundred thousand TPS.
More good news was that the e-CNY had a major success on the opening night of the Olympics when e- CNY purchases exceeded those made with Visa. This is wholly believable as all audiences in the Olympic venues could only pay with e-CNY, cash, or Visa card. Visa, the games’ sponsor, shared payment with e-CNY and Alipay and WeChat Pay were conspicuously absent. Given that Beijingers rarely carry cash or Visa, it is easy to see why e-CNY was the winner!
The digital renminbi accepted here
Hardware Wallets No Threat to User Privacy
Mu also commented that “all foreign users are using hardware wallets.” Hardware wallets are simple plastic cards unconnected to mobile networks, with some more complex versions showing card balance on an e-ink display.
The hardware wallet is not connected to a mobile network and preserves the digital privacy of its user. All transactions made with the wallet are anonymous up to their maximum transaction amount of 2,000 yuan or roughly US$ 300.
That Olympians used the wallet is great news and shows that warnings by politicians of potential digital surveillance using the e-CNY were overblown. There was no need to download an app, and it would be hard to claim that the surveillance on a plastic e-CNY card would be any greater than existing Visa cards.
I have made this claim in every interview I had and stated clearly that the e-CNY hardware wallets represent no threat to users. In addition, they would likely be cheaper for athletes to use as they would not have to pay Visa’s exorbitant foreign exchange fees.
While a software version of the digital yuan was available, most athletes chose not to use it either out of an abundance of caution or because the hardware wallets are simply more straightforward. From my own experience, the setup of the mobile wallet can be off-putting.
Another version of payment card this one with an e-ink display. Some versions have a keypad or a thumbprint reader.
Hardware wallets can be filled at an ATM which converts foreign banknotes or credit card withdrawals directly into digital yuan. Frankly, it’s hard to beat for simplicity, and when COVID ends and travel to China returns, tourists will likely use them en-masse. They are also critical to China’s plans to use the e-CNY to increasing financial inclusion. The wallets are cheap and do not require a back account, cell phone or signal to use. They are perfectly adapted to China’s rural communities.
The PBOC’s goal in bringing the e-CNY to the Olympic games was clear from the onset. They wanted to show off their new creation and show a foreign audience what a “cashless” China is all about. COVID dashed these dreams, although the e-CNY still got a fair amount of press. I was delighted to contribute to no less than ten news reports about the digital yuan during this period!
Google Trends “Interest over Time”
Bing Dwen Dwen in yellow is the winner!
Blue: digital yuan, Red: central bank digital currency, Yellow: Bing Dwen Dwen
Still, the chart above showing the Google Trends graphs for the search terms: “digital yuan,” “central bank digital currency,” and “Bing Dwen Dwen” indicates that the PBOC only partially succeeded. What is fascinating is that the interest in the digital yuan peaked in April of 2021 with the initial announcement that the new digital currency would be used at the Olympics.
Interest in the digital yuan since that time has waned. Bing Dwen Dwen in yellow in the chart above is the clear winner! The term “central bank digital currency” showed marginally lower amounts of interest than digital yuan but recently gained due to the issuance of CBDC reports by the Fed.
What the PBOC did do
The PBOC will be justifiably proud of its efforts to get the e-CNY covered throughout the specialty financial media you and I frequent. However, it’s clear that the digital yuan is still a specialty topic at best and that Google Trends is not the defining metric for the PBOC’s success.
What Google is unable to capture is that the digital yuan made legislators in the US and worldwide take note that a central bank digital currency future is coming. Yes, US legislators were quick to proclaim that the digital yuan was too big a security risk for US athletes to use, but it also appears to have kicked off an earnest discussion about CBDC in the US. This is despite the discussion already being well advanced in the EU.
The timing for the release of the Fed’s “Project Hamilton” paper seemed to oddly coincide with the Olympics. A simple coincidence?
That the Federal Reserve seems to have timed the launch of its digital dollar white paper and Project Hamilton research paper at about the same time as the Olympics would seem to be more than just a coincidence. Perhaps this was the Fed’s way of saying, we’re not that far behind?
The Olympics couldn’t show the future
The foreign guests using their e-CNY cards within the Olympic zone may enjoy using them, but I’m sure none will be all too impressed. To most, it will seem like just another added-value card, and the irony of having the Visa logo on the front will make that comparison appear even more valid.
The Olympics were successful for the PBOC even if most will not take away a clear picture of the future e-CNY will bring.
Who can blame them? When buying lunch and trinkets, an e-CNY card certainly doesn’t behave much differently. What is happening behind the scenes may be breathtaking in its complexity and a harbinger of change for the future of money, but on its face, it’s just another Visa card with a funny yuan logo.
Sadly, the majority of articles I’ve read, and some I’ve contributed to, seem to lose sight of the e-CNY’s role in our future. Sure, many understand that it is a perceived threat to the dollar. Some will gently tread around the concept that e-CNY is a potential extinction event for WeChat and Alipay, despite my assurances to the contrary.
Most miss that the e-CNY isn’t about simply making payments today. If that were the case, Alipay and WeChat would be good enough. Instead, it’s about a future with ever deeper payment integration and advancing China’s stated goal of building a digital society.
e-CNY is the next step in payments
China’s e-CNY is the next step in payment. It is fundamentally designed to go places and do things that neither of the payment platforms was ever designed for. Built-in smart contracts, adjustable interest rates, tokens, and inclusion-friendly off-line transfer all make it a game-changer. It also complements China’s unparalleled new nationwide blockchain and 5G networks. So I think you can see that there is something more going on here than making a simple payment using a plastic card.
The E-CNY’s Olympic launch was as successful as it could be given the circumstances, and the PBOC is to be commended for its hard work. Still, what we saw at the Olympics is just the tip of the iceberg of e-CNY’s capabilities. Crypto may give us a hint at what that digital future may look like with DeFi and other marvels despite operating in a regulatory grey zone. China’s e-CNY innovators working with regulators will drive these innovations ever further—inventing new capabilities and services that we can’t even imagine yet. That’s what makes the e-CNY so exciting and what the Olympics couldn’t show.
Rich Turrin is the international best-selling author of "Cashless - China's Digital Currency Revolution" and "Innovation Lab Excellence." He is an Onalytica Top 100 Fintech Influencer and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking. Living in Shanghai for the last decade, Rich experienced China going cashless first-hand. Rich is an independent consultant whose views on China's astounding fintech developments are widely sought by international media and private clients.
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