The Head of the Digital Currency Research Institute at the People’s Bank of China (PBoC), Mu Changchun, has stated that the digital yuan, also known as the central bank digital currency (CBDC), will bring about a revolution in the way retail payments are made in China. He even suggested that the digital yuan could eventually replace physical cash altogether. Mu made these remarks at the China International Financial Annual Forum.
Mu emphasized the importance of ensuring that the digital yuan is accepted in all retail payment scenarios across Mainland China. He called on the PBoC’s banking and e-pay partners to streamline their technical protocols for QR codes, which are currently hosted by the PBoC or various state-run banks. The popular e-pay platforms, WeChat Pay and Alipay, have also integrated e-CNY functionality into their apps. However, instead of collaborating on a unified payment system, these partners have added e-CNY payment options to their individual platforms. This can lead to adoption issues for merchants using point-of-sale (POS) devices.
To address this, Mu and experts such as Andrew Fei, a partner at King & Wood Mallesons, have suggested the development of a single, unified, and standardized QR code that supports e-CNY payments as well as existing electronic payment methods. This would incentivize widespread use of the digital yuan by making it more convenient for consumers to use and for merchants to accept.
Mu’s comments about upgrading banking and e-pay partner systems were speculated to be primarily directed at retailers, rather than partner financial institutions. Jie Hu, a Professor at the Shanghai Jiao Tong University’s Advanced Institute of Finance, interpreted Mu’s remarks as a call for merchants to be ready and willing to accept the digital yuan as a form of payment.
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On a broader scale, Mu’s goal appears to be a reduction in China’s reliance on cash, or even its complete elimination. He believes that digital payment tools may eventually fully meet the needs of the digital economy and society, replacing cash. This aligns with China’s ambition to lead the world in CBDC and “cashless society” initiatives. Other Asian countries, such as South Korea, have also launched their own IT-powered drives toward a cashless society.
According to a recent interview published by Xinhua, Kent Matthews, a Professor of Banking and Finance at Cardiff University, highlighted that the proportion of cash in circulation in China has dropped to 3.7% and continues to decline. Matthews noted that China is on track to become the global leader in cashless transactions, although legislating cash away completely would be impossible.
Mu clarified that the existing inter-bank payment and clearing systems can still meet China’s economic development needs. He stated that there is no need to replace these systems with the central bank’s digital currency system. According to Mu, conventional and CBDC networks can be fully interoperable and seamlessly connected. Additionally, Mu believes that CBDC smart contracts could enhance the efficiency of wholesale payments in China.
In conclusion, Mu Changchun’s remarks at the China International Financial Annual Forum underscore the central role that the digital yuan will play in transforming retail payments in China. The vision is for a unified QR code system that supports e-CNY payments, making it more convenient for consumers and merchants alike. These efforts align with China’s larger goal of reducing cash dependence and moving towards a cashless society. Overall, the digital yuan has the potential to revolutionize the Chinese economy and solidify China’s position as a global leader in digital currencies.
