This is the first in a new series on Digital Yuan. In the past one decade, China has been rapidly transforming into a cashless economy Owing to China’s growing domestic consumption, digital payment systems like mobile payments and card transactions have made payment settlements more convenient for Chinese citizens. Moreover, the COVID-19 pandemic extensively stimulated digital payments, driven by social distancing policies adopted by governments across the world over the last two years.

In the past one decade, China has been rapidly transforming into a cashless economy. Owing to China’s growing domestic consumption, digital payment systems like mobile payments and card transactions have made payment settlements more convenient for Chinese citizens. Moreover, the COVID-19 pandemic extensively stimulated digital payments, driven by social distancing policies adopted by governments across the world over the last two years. The World Bank’s 2021 Findex report suggests that around 40 per cent users of digital payments in developing economies excluding China have used digital payment for the first time since the start of the COVID-19. In the case of China, 82 per cent people have used digital mediums for financial transactions out of which over 100 million people have resorted to digital transactions for the first time in the last two years. Other countries have also experienced similar growth in adoption of digital payment systems.

 The next step in the development of global digital payment systems is the introduction of the Central Bank Digital Currency (CBDC). Several problems in the current digital payments systems, including that of cryptocurrencies, have prompted many countries around the world to explore possibilities of launching digital currency backed by the central bank of that country. It will not only resolve limitations faced in present digital payment systems, but also reduce dependency on physical currency. Bahamas was the first country in the world to have launched its own CBDC in 2020 called ‘Sand Dollar’ followed by some more countries from the Caribbean region. Currently, there are over 100 countries at different stages of introducing CBDC. China, for its part, had set up a research exploration team to check the feasibility of a CBDC as early as 2014 and started pilot projects in CBDC back in 2020. Within these limited pilot projects, it has already reached more than 200 million individual users of Digital Yuan by early 2022. Although it has not been able to launch a full-fledged Digital Yuan yet, the Communist Party of China (CPC) still remains focused on achieving the nationwide CBDC implementation at the earliest.

China’s CBDC, known as E-CNY or Digital Yuan, is being promoted by the government as a public good which can cater to different payment needs and allow a safer and more inclusive payment method for citizens. However, before delving into Digital Yuan, it is necessary to analyse the existing state of the digital payment system in China and the problems faced by the system which nudged the government to look for other alternatives.

Digital payments system and China’s CBDC

China’s faster adoption to digital payments is linked to its economic transformation in the last four decades which has been accompanied by its focus on achieving technological prowess. One of the indicators of these efforts is the internet penetration rate which is very high considering the demographic structure of China. As of June 2022, there were 1.05 billion internet users in China which accounted for 74.4 per cent  of China’s total population. The pandemic has spurred rapid increase in the number of internet users by almost 10 per cent (64.5 per cent  in March 2020) albeit it still possesses regional, gender-based and demographic disparities. However, easy access to the internet has naturally translated into smooth adaptation to digital payment systems.

survey conducted by the People’s Bank of China (PBoC) in 2019 revealed that 66 per cent of total transactions in China are conducted through mobile payment apps whereas only 23 per cent transactions are conducted using cash. Similarly, the 2021 mobile payment survey research report conducted by China UnionPay suggests that mobile payments accounted for the purchase of over 80 per cent of daily consumption goods in 2021. The report also mentioned that habit has become a more dominant factor than convenience for faster adoption of mobile payments in China. There have even been several cases reported in different parts of China where merchants had refused to accept cash and insisted on mobile payments. Although physical cash cannot be denied by anyone since it is the legal tender, these incidents show people’s convenience and comfort in getting habituated with using digital payments.

Owing to pandemic measures, Payment and Clearing Association of China launched an initiative in February 2020 to promote digital payments in order to prevent the risk of infection. This had received a positive response from Chinese citizens. It is evident from the fact that 8 out of 10 adults in China have used digital methods to make payments since the beginning of the pandemic. Another survey by Mastercard in September 2022 suggests that 66 per cent of Chinese citizens have reduced the use of cash in the past one year. As a result of this, the People’s Bank of China recorded transactions worth US$ 73.78 trillion from total 151.23 billion transactions done through mobile payments in 2021, a year-on-year increase of 21.94 per cent and 22.73 per cent respectively.

Other than mobile payments, card-based transactions are dominated by the State-owned UnionPay which enjoyed monopoly in the domestic market until 2020. Globally, UnionPay ranked first in terms of issuing payment cards as of December 2021. In the domestic market, PBoC survey shows that although only 7 per cent of total transactions are conducted using debit/credit cards, it accounts for 23 per cent of total value transacted. When combined with mobile payments, overall digital payments account for a staggering 82 per cent of total transactions. Thus, different surveys indicate the growth of China’s digital payment system, especially after the outbreak of the COVID-19 pandemic. With China’s continued progress in technology, the digital payment system has achieved more sophistication and become a significant part of China’s economy. However, faster transition to cashless transactions has also brought some problems with it which have compelled the Chinese government to reduce its dominance by introducing Digital Yuan.

Problems in Digital Payment Market

In a country like China, where it follows excessive state control over all domains and especially in an economy where State Owned Enterprises (SOE) dominate most of the sectors, the digital payments industry is still dominated by private players. Alipay (owned by Ant Group) and WeChat Pay (owned by Tencent) have occupied pole positions in this industry. By March 2022, nearly 93 per cent of China’s digital payment customers had used Alipay and 86 per cent customers had used WeChat Pay as one of their preferred payment platforms. Together, these two platforms own over 90 per cent of mobile payment business in China. Nearly 100 million small and micro businesses use payment services of these two platforms. Other platforms like JD Pay, Huawei Pay occupy a miniscule position in the digital payment market. Thus, the disruption in any one of these ‘too big to fail’ platforms can create short-term economic instability in the Chinese economy.

This duopoly of private companies in the digital payment market does not fit well in China’s state-led economic structure. It also indirectly challenges the overarching state control over the economy. Thus, PBoC regularly keeps updating regulations regarding the fintech sector to tighten its oversight. In fact, the sudden cancellation of Ant Group’s US$ 37 billion IPO and a US$ 2.8 billion fine for violating antitrust regulations tell us a lot about the Chinese government’s approach towards these fintech companies. In addition, China set up a dedicated National Anti-Monopoly Bureau last year to oversee anti-monopoly enforcement functions. This action is in line with the statement given by Deputy Governor of PBoC, Fan Yifei, about deepening antitrust action in the payment sector. He also warned these companies against disorderly expansion, misuse of data, predatory competition and violation of consumer rights.

Moreover, data security threats by way of exchange of users’ personal data and cyberattacks have also raised suspicion about continuation of this duopoly. Few years ago, Alipay had registered a case in which hackers had stolen up to 2000 Yuan from several accounts using hacked IDs. In addition, Alipay and WeChat Pay have to process illegal accounts regularly to avoid government intervention. Interestingly, there are also incidents where a trade-off between data security and consumers’ interests have occurred. For instance, a few years ago, WeChat Pay had refused to provide a user’s information to nullify wrong transactions which could have saved another user’s money. Alipay, on the other hand, seems to have given more preference to consumer interests without compromising personal data. Thus, this trade-off has played a crucial role in regulating these platforms in China.  

Financial transactions data of citizens reveal various trends about their lifestyle. Hence, the government would not be comfortable for being deprived of this high value data. Thus, the government’s push for stricter regulations in the fintech sector is largely motivated by the ownership of data. As a result, private players are always on alert to prevent any financial or data security irregularity on their platforms. In fact, with new government regulations to back all customer deposits with equivalent reserves, Alipay and WeChat Pay have lost profits of up to US$ 1 billion annually as their ability to invest customer funds will reduce drastically. It has helped to put a check on financial frauds through mobile payment platforms. On the other hand, it also restricted excessive flow of capital in the economy through these non-bank institutions and made PBoC’s monetary policy more effective. However, despite several precautions, the possibility of fraud still remains in the privately-owned mobile payment industry.

Further, these mobile payments are mainly connected to bank accounts and thus, keep the unbanked population away from reaping its benefits. The 2022 Findex database shows that 11.3 per cent of China’s adult population (15+) – around 130 million people – do not have an account in any financial institution. Similarly, one-fourth of China’s population is still deprived of internet connection which also limits their access to digital payments. These disparities certainly limit the success of faster transition towards the digital payment system in China. Similarly, foreign tourists also find it increasingly difficult to access these payment platforms as they do not have accounts in a Chinese bank. Hence, China’s new CBDC is being created in such a manner that would address these problems and achieve more financial inclusion.  

Status of Cryptocurrency in China

Cryptocurrency is another type of digital currency that works on the principle of distributed ledger where all transactions are secured using blockchain technology. Since transactions are recorded in a decentralised manner, it allows cryptocurrencies to remain outside the purview of the government’s financial authority. It helps to reduce transaction costs for cross-border transfers due to absence of financial intermediaries and it can be even accessed by an unbanked population. However, it has received a mixed response from all countries considering its volatile nature and possibility of financial scams. In the case of China, it has completely banned all transactions in cryptocurrency in September 2021 after a series of other regulations which discouraged all stakeholders from trading in cryptocurrency. Earlier, a ban was imposed on domestic and overseas trading in cryptocurrencies in 2019. However, online transactions in foreign exchanges still continued which necessitated new regulations last year. As soon as China announced a complete ban on cryptocurrency, the price of Bitcoin fell by nearly US$ 2000 which is a testament to the dominance of China in the global cryptocurrency market. In April 2021, China alone accounted for 46 per cent of global currency mining capacity – down from 75.5 per cent in September 2019. After the recent ban, the share of China is further expected to go down as regulatory measures are made more stringent than before.

As per the notification released by National Development and Reform Commission (NDRC), cryptocurrencies had disrupted economic and financial order as well as provided a safe haven for illegal activities like gambling, money laundering and frauds. In October 2022, Chinese authorities arrested 93 members of a criminal group for siphoning off US$ 5.6 billion using cryptocurrency. In the year 2021 alone, China witnessed nearly 260 cases of crypto-related cases and seized more than US$ 1.5 billion in cryptocurrencies.

The 2021 white paper on Digital Yuan also mentioned that cryptocurrencies do not qualify for daily activities given the lack of intrinsic value, price volatility and huge energy consumption. Chinese experts in this field believe that since cryptocurrencies lack sovereign credit support, it can challenge the legal currency system and make China’s monetary policy changes ineffective. Further, increasing popularity of cryptocurrencies would also weaken overarching state control over the economy and may push the Chinese economy into a crisis. As a result, China is in dire need to find a suitable alternative like Digital Yuan which can provide features of cryptocurrency but at the same time, remain under the state supervision.


China has been transitioning from an investment-led growth model to consumption-driven economy for which the Digital Yuan can play a crucial role in facilitating domestic consumption. Digital payment systems like mobile payments, cards, cryptocurrencies have certainly revolutionised payment systems across the world. It has overcome several defects of traditional cash-based transactions and thus, became popular globally in a short period. For China, digital payments have played a crucial role in encouraging its citizens to spend their rising purchasing power with more convenience. However, it has also created several problems which are similar for most countries in the world. Thus, many countries including China are taking efforts to introduce CBDCs which will be able to resolve these problems.

As mentioned earlier, China is in the advanced stage of introducing Digital Yuan and the 2021 White paper and other supporting documents have revealed several features of this new currency. Hence, the next part in the series will look at the meaning and evolution of Digital Yuan, its proposed features and also analyse varied experiences during its research and pilot stages.

Further, how the Digital Yuan can impact China’s domestic economy will be an important factor to assess its success. Moreover, as the world’s second largest economy, introduction of the Digital Yuan in China will also leave its mark on the global economy. Internationalization of Renminbi (RMB) is likely to get impetus with the launch of Digital Yuan as it will ease payment methods even for non-Chinese people dealing in RMB. Similarly, promotion of RMB through Belt and Road Initiative (BRI) will also be impacted due to Digital Yuan. Lastly, experiences of China during research and pilot phases of Digital Yuan can also provide insights for other countries like India which are currently in different stages of launching their own CBDCs. All these issues will be covered in the subsequent articlesRead Part 2 here.   


Omkar Bhole is a Senior Research Associate at Organization for Research on China and Asia (ORCA). He is a Chinese language student and completed Masters in China Studies from Somaiya University, Mumbai. He has completed the HSK 4 level of Chinese language proficiency and works as a Chinese language instructor. His research interests are China’s foreign policy in Asia, China’s economic transformation and China’s domestic politics. He has previously done internships at the Institute of Chinese Studies (ICS) and What China Reads. He has presented papers at the 1st All India Conference of East Asian Studies and 16th All India Conference on China Studies. He can be reached @bhole_omkar on Twitter or him email at

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