The Head of the Digital Currency Research Institute at the People’s Bank of China (PBoC), Mu Changchun, has declared that the digital yuan is poised to revolutionize retail payments in China and may eventually replace physical cash altogether. Speaking at the China International Financial Annual Forum, Mu emphasized the importance of ensuring widespread acceptance of the digital yuan in all retail payment scenarios across Mainland China.
Mu Changchun also called upon the PBoC’s banking and e-payment provider partners to streamline their QR code technical protocols. Presently, digital yuan wallets are hosted by the PBoC or several predominantly state-run banks. Notably, major private-sector e-payment giants like WeChat Pay and Alipay have integrated e-CNY functionality into their apps. However, these partners have primarily focused on integrating e-CNY payment options into their payment interfaces, rather than harmonizing them with each other’s offerings.
This fragmentation, as Mu indicated, can result in technical adoption challenges for merchants when using point-of-sale (POS) devices.
Unified QR Code for Widespread Adoption
Addressing this issue, Mu suggested the creation of a single, unified, and standardized QR code that supports e-CNY payments, as well as payments from Alipay, WeChat Pay, and other existing electronic methods. Such a unified QR code could incentivize broader e-CNY adoption by simplifying its use for consumers and acceptance by retailers in the retail context.
While Mu Changchun’s comments are relevant to financial institutions, it is believed that they are primarily directed at retailers. Jie Hu, a Professor at Shanghai Jiao Tong University’s Advanced Institute of Finance, expressed this sentiment, stating that Mu’s message conveys the necessity for merchants to be ready to accept e-CNY payments if customers choose to use them.
A Vision for a Cashless Society
Beyond streamlining retail payments, Mu Changchun’s broader vision is to significantly reduce China’s dependence on physical cash, and potentially eliminate it. He stated, “In the future, commercial electronic payment tools may fully meet the needs of the digital economy and society and completely replace cash.” This vision aligns with China’s growing emphasis on fostering a digital economy and the People’s Bank of China’s commitment to lead in central bank digital currency (CBDC) and cashless society initiatives.
Data shows that cash’s share of the total yuan in circulation has already dropped to just 3.7%, and this proportion continues to decline. While it may be impossible to legislate cash out of existence, China is on a trajectory to become a global leader in cashless transactions. Kent Matthews, a Professor of Banking and Finance at Cardiff University, noted that people are using cash far less than in previous years, signaling an inexorable trend toward a cashless society.
Interoperability and Efficiency Enhancement
Mu Changchun also emphasized that the existing interbank payment and clearing systems can still meet China’s economic development needs. He believes there is no need to replace these networks with the central bank’s digital currency system. Mu asserted that conventional and CBDC networks can be fully interoperable and seamlessly connected. In conclusion, he highlighted the potential use of CBDC smart contracts to enhance the efficiency of wholesale payments in China.
