China’s New CBDC Wallet To Have No Transaction Cap, Confirms PBOC Official

November 8, 2021
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Some 140m people had opened wallets for China's new digital yuan as of October and used it for transactions totalling around 62bn yuan ($9.7bn), according to a senior official at the People’s Bank of China (PBOC).

Some 140m people had opened wallets for China's new digital yuan as of October and used it for transactions totalling around 62bn yuan ($9.7bn), according to a senior official at the People’s Bank of China (PBOC).

China’s fledgling central bank digital currency (CBDC) looks set to continue on its path, the first to be issued in a major economy.

While the EU, UK, and US all appear miles behind, China’s CBDC, otherwise known as the e-CNY, is continuing to gather momentum among the country’s 1.4bn population as the trial rollout continues.

What is more, there will be no transaction cap for at least one type of wallet offered by the PBOC, meaning that wholesale and retail payments could be possible via the digital currency.

Mu Changchun, the director-general of the PBOC’s digital currency institute, told an audience at Hong Kong Fintech Week that out of the four wallets that digital yuan operators will be able to operate, one would have no limits on transactions.

However, this wallet option will also have the highest level of due diligence, needing to be opened at a brick and mortar bank, with personal identification.

“The PBOC really dropped a bombshell when it said that the highest level of wallet would allow e-CNY spending without a limit,” said Richard Turrin, author of "Cashless: China’s Digital Currency Revolution", speaking to VIXIO.

This is a solid indicator that the PBOC fully intends corporates to use e-CNY for big-ticket items such as salary payment and large high-value transactions currently carried out by the central bank's real time gross settlement systems, according to Turrin.

Changchun also confirmed that a less privileged wallet option can be opened by users with just a mobile number, which will be anonymous to the PBOC, but will have a daily cap of 5,000 yuan (£575), as well as an annual cap of 50,000 yuan (£5,753).

The central bank official also said that less information will be collected via the e-CNY wallets than other digital payment services, with the PBOC not providing information to any third-party or other government agencies unless stipulated by the law.

Data privacy has been an issue of deep concern for those in the CBDC field. For example, in the European Central Bank's (ECB) recent digital euro consultations, it was ranked the highest priority issue among those surveyed.

The numbers

Although only 10 percent of the population now apparently have access to the e-CNY wallet in China, given the scale of the country, this is still equivalent to the population of Japan.

In October, Nigeria issued its own CBDC, the e-Naira. Despite being a full rollout of the service, at the time of launch, just 2,000 customers and 120 merchants had registered successfully with the e-Naira’s platform across 33 banks, which is available via an app on platforms including Apple and Android.

To put this in perspective, 1.55m merchants can now accept payments using e-CNY wallets, including utilities, transportation, retail and government services, according to Changchun.

The digital yuan is going to have a massive impact in China and beyond as well, and its growth is likely to catch the attention of other central banks, such as the ECB, speculated Joaquim Matinero Tor, a banking associate at Roca Junyent law firm. “Major players like WeChat, Alipay and Alibaba will offer discounts and advantages to anyone who pays with Digital Yuan.”

Furthermore, as the Winter Olympics are taking place in Beijing in 2022, it is possible that foreign athletes will be provided with a credit card to top up with the digital yuan, Matinero Tor said.

Yet, Changchun said there is still no set date for the full rollout of the e-CNY.

Regardless, these statistics are still a significant leap from the ones issued by the PBOC in June, which showed 20.87mpersonal wallets, 3.51m corporate wallets and a transaction value of 34.5bn yuan ($5.39bn), according to Turrin.

“China’s CBDC is still in a limited trial, so it shouldn't come as a surprise that it has quite a way to go to catch the payment platforms,” he said. “Still, it is making great progress and this is another great milestone.”

A matter of trust

Changchun was not the only central banker talking about CBDCs last week either, with the ECB’s Fabio Panetta telling an audience in Madrid that as consumers shift towards digital payments, it is important that they can readily access and use central bank money in digital form as well.

“By providing a monetary anchor, central bank money plays a key role in maintaining a well-functioning payment system and financial stability and ultimately trust in the currency,” he said, calling this a precondition for preserving the transmission of monetary policy and hence for protecting the value of money.

The speed of digitalisation means that central banks must prepare for a digital future in which demand for cash as a medium of exchange may weaken, requiring the convertibility of private money into cash to be complemented by convertibility into central bank digital money, Panetta continued.

“We are working to make the digital euro an attractive means of payment for households, firms, merchants and intermediaries alike, so that it can play its intended role as the necessary monetary anchor for the digital era,” he said.

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