E-RMB in the corporate scene – July 2021 Milestonerussonxiao
Following on from our earlier article on the E-RMB, it is interesting to see the progress of the implementation and the implications for companies. The publication of the white paper in July 2021 entitled “中国数字人民币的研发进展” on the research and development progress of E-CNY in China.
This paper aims to clarify the PBOC’s position, explain the objectives, and vision as well as the technical aspects of E-CNY.
A clear definition of E-CNY has been outlined: “E-CNY is the digital version of fiat currency issued by the PBOC and operated by authorized operators. It is a value-based, quasi-account-based and account-based hybrid payment instrument, with legal tender status and loosely-coupled account linkage.” This definition emphasizes the creation of the digital currency by the central bank, centralized management with partial distribution by operators such as banks. The hybrid status between cash and digital is confirmed as long as the demand for physical RMB exists.
In November 2020, China’s central bank, the People’s Bank of China (PBOC), gave the green light to conduct hypothetical-use tests in Shanghai, Hainan, Changsha, Xi’An, Qingdao and Dalian. The selection of pilot places for E-CNY project took into account factors such as major national development strategies, coordinated regional development strategies, as well as city-specific industrial and economic features.
As of June 30, 2021, e-CNY has been applied in over 1.32 million scenarios, covering utility payment, catering service, transportation, shopping, and government services.
Wallet design and purpose
The digital wallet will clearly be the primary mean of exchange for the E-CNY based on PBOC studies from 2019 indicating that 46% of payments made are primarily made digitally.
In addition to the digital wallet, a physical wallet containing a security chip and other embedded technologies will allow the same operations to be performed and thus enrich the E-CNY environment. The physical wallet will have the function, for example during the 2022 Beijing games, of allowing tourists who are not equipped with the necessary software and registration to consume in a normal way.
The E-CNY wallet will be differentiated according to its user as it can be personal or corporate. The registration for its application will therefore be different, so that the transaction limit will also be determined and modifiable.
It will be possible to have a main wallet and to open sub-wallet that can be capped, condition payments and other functions are under discussion. Companies will be able to manage their payments and funds through these sub-wallets in a different and secure way.
The concept of “controllable anonymity” was defined as “anonymity for small value and traceable for high value” without specifying the amounts. It is recalled that control will be aimed at the misuse of the E-CNY and that the E-CNY will collect less information than current third parties.
Third parties will still be involved with authorized operators with inter-operability of cash in circulation. Commercial banks and licensed non-bank payment institutions that meet compliance requirements and regulatory requirements regarding risk management may participate in the E-CNY payment system as per recognition and support of the central bank. They can provide digital retail payment services for customers. As a first layer a level of control in these third parties will be put in place to reassure about the “controllable anonymity” mindset.