China Nears Fully Cashless Economy

digital yuan

China has taken two steps closer to a fully cashless economy after two small private Chinese banks announced last month that they would end services related to bank notes and coins, according to a South China Morning Post report Friday (Feb. 4).

Beijing-based Zhongguancun Bank will end cash services, including over-the-counter deposits and withdrawals and cash services on ATM machines, in April, while NewUp Bank of Liaoning will end its cash services in March, the report says.

Chinese residents have long relied on Tencent Holdings’ WeChat Pay and Alibaba Group Holding’s Alipay over cash and Beijing has been conducting a nationwide pilot scheme for digital currency known as e-yuan. So far, more than 261 million people having downloaded the wallet app since it launched last year.

Many Chinese businesses are transitioning to a more digital yuan-centric payment system during the Lunar New Year this week, the report says. Tencent recently added e-yuan as a payment option to WeChat Pay while eCommerce giant now supports e-yuan payments in its online stores.

Meanwhile, Chinese on-demand services provider Meituan last week allowed more than 200 types of offline merchants — including restaurants, grocery stores, movie theaters and hotels — to accept e-yuan payments, even as the country’s central bank says merchants must accept bank notes and coins.

Some private banks in China hope to become internet banks, but China’s crackdown on the internet in the past year could make that an uphill battle, the report says. So far, China has granted four private banks the right to conduct cross-regional banking services on the internet.

Related: Blockchain Trial Zones in China Lay Tracks to Expand Digital Yuan

Last month, the Cyberspace Administration of China (CAC) began promoting blockchain projects in as many as 15 “zones” and throughout more than 160 government entities, including government departments, schools and car companies.

The goal is to use blockchain in data sharing to make business processes more effective and to ease any frictions across trade finance, equity markets and cross-border finance.

China’s digital yuan trials saw $8.3 billion of the country’s payments market in the past six months and $13.68 billion in the past two years. The country’s full-scale rollout is expected during the 2022 Winter Olympics, which kicked off Thursday (Feb. 3).