China has been at the forefront of central bank digital currency (CBDC) development with its digital yuan or e-CNY. However, a recent trial where state employees received their salaries in the e-CNY is revealing some challenges in getting the public to adopt the digital currency.
Thank you for reading this post, don't forget to subscribe!According to a report from the South China Morning Post, most participants in the trial immediately transferred their e-CNY balances back into traditional bank accounts to spend as cash. One of the pilot participants, Sammy Lin, explained his rationale saying “I prefer not to keep the money in the e-CNY app, because there’s no interest if I leave it there. There are also not so many places, online or offline, where I can use the e-yuan.”
This lackluster adoption points to a few potential issues with the e-CNY roll-out so far. First is the lack of incentive – with no interest earned, there is little motivation to keep funds in the digital currency versus a traditional bank account. Second is the limited merchant acceptance – if users can’t widely use the e-CNY for payments, its utility is severely diminished.
The e-CNY’s traceability also raises privacy concerns that may be driving some users away and towards more anonymous digital payment options like AliPay and WeChat Pay that are already entrenched. Good old-fashioned physical cash still remains an option for those prioritizing privacy.
While China is furthest along in CBDC development, with pilots underway since 2019, the lukewarm reception to this salary trial highlights some key obstacles. Widespread public adoption will require overcoming not just technical infrastructure challenges, but also providing incentives, ensuring robust merchant acceptance, addressing privacy concerns, and effecting a cultural shift in how money is conceptualized. It remains to be seen if the digital yuan can cross this formidable multi-faceted adoption threshold.
