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China has been continuously expanding the pilot implementation for central bank-issued digital currency—or CBDC, as the world’s second-largest economy moves closer to becoming a cashless society.
Two leading Chinese state-run lenders are now working with investment fund managers and insurance companies to facilitate increased use of the experimental digital fiat currency. As part of their digital yuan (e-CNY) pilot projects, these state-owned financial institutions will now allow the use of digital currency for acquiring investment funds and insurance products.
The banks announced pilots in a bid to explore the digital yuan’s use beyond low-value daily retail payments as earlier People’s Bank of China (PBOC) pilots initiatives that were focused on B2C payments in stores and public transport networks.
New pilots explore use of e-CNY
China Construction Bank (CCB) revealed it has started working with Shanghai Tiantian Fund Distribution, to enable holders of PBOC’s digital currency to buy investment funds and insurance products online. The collaboration also involves Chinese e-commerce heavyweight JD.com.
As of June this year, the CCB has reported a total of 28.5 million digital yuan transactions, for 18.9 bn yuan ($2.9 bn). The bank said that it has so far opened over 8.4 million digital wallets for individuals and businesses.
Meanwhile, the Bank of Communications (Bocom) – one of China’s oldest banks – also stated that it is exploring the idea of expanding the use of Chinese e-yuan to fund management and insurance companies. Bocom had reported 6.3 million e-yuan transactions amounting to 2.5 bn yuan ($388 m).
Bocom’s executive vice-president Qian Bin said at an interim results briefing that “China’s central bank digital currency is a form of legal tender, and from the perspective of a commercial bank, it is our obligation to facilitate the development and liquidity of the currency. We have made a lot of preparations to ensure the high efficiency and steady operations of the e-yuan system.”
Another report by China’s official media suggested that China’s digital yuan was used in the domestic futures market, to facilitate transactions for the first time. The state-run Xinhua news agency announced that the Dalian Commodity Exchange (DCE) has utilized the application of e-CNY in the futures market for the payment of storage fees with help from local branches of Bank of Communications and Bank of China.
By late August, the Industrial & Commercial Bank of China (ICBC) branch in Shenzhen cooperated with Home Credit Consumer Finance Co. Ltd to promote the digital renminbi pilot for rolling out the consumer lending option.
Earlier in July, Ping An – China’s financial giant – also teamed up with the Bank of China to offer China’s first digital yuan insurance policy to medical personnel in Shenzhen, to expand usage of digital currency.
Eight other Chinese lenders, that are now involved in the digital pilot programs include the big four: Industrial & Commercial Bank of China, Agricultural Bank of China and the Bank of China, as well as China Merchants Bank, China CITIC Bank and Postal Savings Bank of China.
PBOC pushes for yuan implementation
To smoothly transform into an advanced digital payment culture, China’s central bank continues to further expand the pilot program and research into the digital yuan’s impact on monetary policy and the financial system.
An August report by Moody’s Investors Service stated that the China’s digital currency will give banks an edge after losing ground to fintech platforms in the payments sector, as it will enhance their data collection ability and broaden their user bases.
“PBOC effort to develop the digital yuan reflects the authorities concerns about data concentration among technology companies,” Moody’s analysts led by Zedric Cheung said.
According to a white paper released by the PBOC in July, trials of China’s CBDC reached 34.5 billion yuan ($5.34 billion) via 70.75 million transactions by the first six months of the year. The report added that e-CNY has been applied in over 1.32 million scenarios, covering utility payment, catering service, transportation, shopping, and government services, during the same period.
The country’s central bank stated in the report that the Chinese digital renminbi would obtain programmability from, ‘deploying smart contracts that don’t impair its monetary functions in order to ‘facilitate business model innovation.’
Furthermore, PBOC also plans to launch e-CNY payment scenarios for the upcoming 2022 Beijing Winter Olympics for unmanned vending carts, automatic vending machines and unattended supermarkets.
China’s digital currency is currently under trial across 11 pilot areas and cities that have participated in government campaigns to promote its use. Earlier in July, China distributed over $41 million in digital RMB red envelopes to Chinese citizens in major cities like Shenzhen along with Suzhou, Beijing, Chengdu, and Shanghai, a report by the Tuoluo Research Institute stated.
