The latest news about China’s digital yuan is that it can now be used to pay for bus rides in Guangzhou, joining subway systems in at least 10 cities, including Chengdu and Beijing, that accept the central bank digital currency.
That’s on top of news out of Guangzhou that the CBDC, formally known as e-CNY, could be used for employee housing fund contributions, Cointelegraph reported. More broadly, as of April, more than 260 million people had used the e-CNY for $13.8 billion worth of transactions, including on food delivery giant Meituan and e-commerce site JD.com, in more than 20 cities, China Daily reported this month.
Most important of all, digital payments apps AliPay and WeChat Pay, which account for more than 90% of all digital wallet purchases, now can use it.
The thing is, Chinese authorities are going about introducing the e-CNY in a smart way: Slow, steady and incremental, and targeting types of payments that will get the widest assortment of people using the CBDC. Which is great except for the slow part.
China has a huge investment in prestige in getting the CBDC out — and a government with enormous control over an economy where digital payments are overwhelmingly popular. Yet after two years it is still struggling to get the digital yuan widely accepted.
What does that say about the likely usage of CBDCs in the U.S., where leading digital wallet Apple Pay was, as of last year, used by just a bit more 6% of the iPhone users who have activated it?
There’s a lesson for governments looking to roll out CBDCs, and for the expectations of payments and crypto industry participants interested in using them: It’s probably going to take a lot longer than boosters believe to make digital dollars, euros, rupees and yuan an active part of the day-to-day payments mix.
Not Anytime Soon
In the U.S., Fed Chairman Jerome Powell has said a U.S. digital dollar couldn’t be ready before five years, and that 10 might be a better guess, while in the EU — where there’s considerably more enthusiasm in institutions like the European Central Bank (ECB) for a digital Euro — are saying that one could be in circulation by 2026. Then there’s India, where the government has said it can have a digital rupee in place by 2023.
Consider that few governments, and even fewer major economies, have anything like China’s ability to strong-arm private companies into actively supporting a CBDC: It’s hard to see how Ali Pay and WeChat Pay benefit when they already have digital payment locked up, and it’s hard to see how a digital dollar or other CBDC would go from formal launch to widespread use in less than several years.
Then factor in strong opposition from banks and from privacy advocates who see digital dollars and other CBDCs as serious threats, and you’ve got another potent set of hurdles to both legal and practical acceptance of digital fiat currencies.
At last count, 105 governments are at some stage of building or launching a CBDC. Ten of them have already done so, although they’re very small — with the exception of Nigeria. How many of them will get past that opposition at all is one question. How quickly they can do it is, as China’s experience shows, quite another.
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