China Takes Next Steps in Retiring Physical Cash

Letter From Shanghai No 811 – Digital RMB only

This week we feature another guest post from John Browning, founding partner of Hong Kong commodity and financial futures broker BANDS Financial. It’s the latest in his ongoing reporting on the development by the People’s Bank of China (PBOC) of e-CNY, its digital yuan*. We last wrote about it here.  

On Sunday (01-09-2022), I read a long article published on Yahoo Finance discussing the outlook for the use of cash, which seemed not to mention China at all in its discussion of the emergence of central bank digital currencies. I don’t know what you use, but my sense is that outside of China most countries, prompted by a covid reluctance to handle physical cash, have moved to a combination of Touch-and-Go style swiping of credit or debit cards or using their phones into which the same card data has been shared.

In China, the dominant apps are WeChat and Alipay, which debit your bank either directly, or you can hold cash in your WeChat or Alipay wallet on your phone. The apps have a quasi-banking feel into which WeChat and Alipay have offered services that compete with traditional banks. With over a billion domestic users, WeChat and Alipay dominate the market as transfer costs are zero/free within their respective ecosystems as opposed to the 2-4% imposed on merchants by traditional credit and debit cards systems.

The Beijing Daily stated last week that WeChat has upgraded its app to include “Digital RMB” in its WeChat Pay “Wallet” and that a “Payment with Digital RMB” option has been added to the WeChat “Receipt and Payment” page. I can confirm that my own WeChat does not have the upgrade, but I expect that it will do soon.

However, I can confirm the national E-CNY wallet is available for download on my iPhone App Store this morning. The developer is the People’s Bank of China Digital Money Research Institute. The transfer of RMB from phone-to-phone or person-to-person should work without the presence of an internet connection―or the intermediation of having a bank account or WeChat or Alipay or being present in China for that matter. This now marks the start of China’s effort to retire the holding of physical cash and use digital RMB only, the implications of which are unimaginably huge.

– John Browning

* It helps to understand the nuances of Chinese currency, which has three currency symbols. RMB stands for Renminbi, the official currency of China. CNY is Chinese Yuan Renminbi, the money used on the Chinese mainland. CNH denotes the Chinese Yuan Renminbi used for exchange outside of the mainland.