Issue: 2023: Vol. 22, No. 1

China’s Digital Currency: The hopes and fears of the e-CNY

Article Author(s)

Vijaya Subrahmanyam

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Vijaya Subrahmanyam, Ph.D., is professor of finance at the Stetson School of Business and Economics at Mercer University, Atlanta, GA. 
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China’s Central Bank, the People’s Bank of China (PBOC), has developed its own digital currency. The electronic China Yuan, or e-CNY, results from a six-year effort and follows a crackdown on private cryptocurrency trading and mining in 2021. Authorities view private cryptocurrency as a threat to financial stability. While digital payments are popular in China, the rollout of a national digital currency puts the government in a space that had been designed to thwart central control. e-CNY also is a key part of China’s efforts to digitize its domestic economy to, in part, expand state control while also strategically positioning China to influence the global financial system.

Piloting the currency in four cities in April 2020, usage of e-CNY is rapidly expanding within China. The Beijing Winter Olympics was an opportune time to showcase the currency’s scalability by piloting it in 10 regions across China in February 2022. The People’s Bank of China has not disclosed the number of adopters of the e-CNY since October 2021, but its unofficial estimates are around 261 million wallets1 with total transaction values of more than RMB 87 billion (approximately $13.75 billion).2 These include both individual and corporate wallets, but it is uncertain if all the wallets are in use. According to the Digital Currency Institute, as of August 2022, more than 5.6 million merchants are accepting payment with the digital currency. Authorities allowed residents to use digital currency to pay utility bills and collect tax refunds and health insurance reimbursements.

China hopes to gain an advantage in the digital currency space even as central bankers globally have been skeptical about moving forward with their digital currencies. Their main concerns center around financial stability and privacy because governments would have access to the daily transactions of users. Inadvertently, the recent bankruptcy of FTX, formerly the world’s second-largest crypto exchange, may have created a watershed moment for regulation and the state’s role. The failings of FTX have led to increased skepticism about cryptocurrencies and financial stability, altering their trajectory in many parts of the world. As a result, the need to regulate digital assets, cryptocurrencies and the digital ecosystem has increased in urgency, shedding favorable light on China’s approach to using centralized control for financial stability. This article presents a summary of central bank digital currencies (CBDCs), China’s e-CNY and China’s motivations in taking the lead in this space. The article argues that e-CNY may be a double-edged sword. While the conveniences of a digital currency can move the country quickly toward financial inclusiveness, there is a danger of the state using the currency as a tool to control society.

Central Bank Digital Currencies vs. Mobile Money

Digital money is not a new concept. Virtual payments are increasingly becoming the norm, as credit cards and payment apps allow cashless transactions in China and elsewhere. Digital money is stored on a cloud server or a personal electronic device and can be used for exchanging goods and services by using payment apps. Mobile money utilizes existing commercial banking-based transactions to manage consumer wallet balances based on exchange with cash or credit lines or loans. Therefore, mobile money is the liability of commercial banks and other authorized financial institutions.

In contrast, national digital currency is issued by a central bank, which may serve as a medium of exchange and hold the same storage value.3 Therefore, a national digital currency is a direct liability to the central bank as it is the issuer of the currency. In this sense, CBDC is a new payment instrument that will either replace or coexist with paper money to represent local currency values, whereas mobile money is not a new instrument but rather a new type of payment transaction.

Mobile payments in China have experienced explosive growth with Alibaba’s AliPay and Tencent’s WeChat Pay, which have dominated the space. Innovations such as QR codes and digital wallets have transformed the nation’s shift away from cash and traditional credit cards. This rapid growth was outwardly encouraged but also resulted in ambivalence about the supervision over the payment systems from the People’s Bank of China. China’s Communist Party inserted Party members as part of both Tencent and Alibaba and Ant Financial’s governance structures so as to control the magnitude and speed of growth of these firms. In 2010, the People’s Bank of China enacted regulations that required foreign-funded third-party providers of online payments to obtain State Council approval to operate in the Chinese market. In addition, they would be subject to different rules from those governing domestic operators.4 As part of a deleveraging campaign in 2017, the People’s Bank of China extended its regulatory wand to end third-party providers and ordering funds transferred from commercial banks into Central Bank accounts. In 2019, the People’s Bank of China took over all deposits of platforms such as Alipay and WeChat Pay to address risks associated with shadow banking, while simultaneously moving user transactions data under the central bank umbrella.

More recently, the State Council launched an antitrust investigation into Alipay and WeChat Pay claiming to help smaller companies enter the market in the payments space. However, due to their ubiquity and innovation ability, Alipay and WeChat Pay have managed to maintain their dominant position. In addition, the central bank is aware that it must depend on more than commercial banks to expand the use of e-CNY. As of 2020, with over 94% of market share, they are the leading third-party providers for online payments in China with Alipay at almost 56% and Tencent, which includes WeChat Pay and QQ Wallet, at close to 39%.5 While Chinese authorities are stepping up efforts to encourage the use of e-CNY, the question remains whether consumers will download this new digital yuan app and switch from WeChat to Alipay. Hence integrating with WeChat and Alipay is key to growing the user base for e-CNY.

How Will e-CNY Work?

China’s digital currency is legal tender, issued and backed by the Central Bank. It will be a traceable replacement for notes and coins and have all the functionality of paper currency – a medium of exchange, a unit of account, and a store of value. e-CNY has two tiers with the first exclusively made up of a few commercial banks that can facilitate the exchange of digital currency with cash or bank deposits. The second tier is the People’s Bank of China, which controls the supply of e-CNY and manages the digital currency payments between the first-tier banks. Policy makers describe the Chinese digital currency network as “one coin, two databases, three centers.” “One coin” is the encrypted digital unit of currency guaranteed by the PBOC. The “two databases” refers to the People’s Bank of China’s ledger that keeps track of all outstanding e-CNY, and all the e-CNY ledgers by the lower-tier banks (Lee et al, 2021). The “three centers” reside within the People’s Bank of China. They comprise a certification center that maps the identities of all digital wallet users, a registration center that tracks ownership of digital wallets and the transactions of their users (Louie and Wang, 2021), and a big data analysis center that monitors payment flows. The central bank will limit how it tracks individuals, noted Mu Changchun, who is leading the project at the People’s Bank of China calling it “controllable anonymity.” Central Bank officers emphasize that the monitoring is primarily to combat illegal activities, including money laundering, terrorist financing, and tax evasion. In addition, the institutions that issue the currency to users are required to meet compliance regulations with payment rules such as capital controls and sanctions.

Currently, e-CNY can only be purchased through China’s six large state-owned banks and Tencent and Ant Group bank affiliates that control China’s two leading digital retail payment platforms. e-CNY users may be individuals or corporations, and each of these “wallet-holders” has different transaction limits. Wallets can be software-based via the e-CNY app, which can be downloaded from the e-CNY app stores, or they can use AliPay and TenPay apps as the interface allowing users to manage their transactions.6 Wallets can also be hardware-based, allowing for contactless transactions. Additionally, other options are being piloted that may include reusable prepaid cards, not linked to any specific bank, that may hold small amounts of the digital currency but may offer some privacy.

What Is China’s Motivation to Take the Lead?

On the domestic front, the e-CNY can help China promote inclusion by giving individuals in all of China easy access to financial transactions. The People’s Bank of China has announced a goal of having more than a billion users before any other country can take substantial steps toward developing a central bank digital currency of its own (Hoffman et al., 2020). The People’s Bank of China can also implement monetary policy while identifying problem areas to help devise policies to ensure price and financial stability (Aysan et al., 2014, 2015). Furthermore, unlike paper currency, digital currency helps track and monitor the use of currency after issuance. This tracking can help prevent fraud and illegal transactions, guaranteeing increased safety for the public.

On the international front, the use of digital currency helps China gain a stronger foothold in the global financial system. First, it would help reduce China’s dependence on the U.S. dollar-denominated financial system. Second, it would allow China to leverage its position as the leader in CBDCs. Given the increasing movement toward cashless societies worldwide, many nations are considering digital currencies, and they may turn to the Chinese model to emulate. This would give China a first-mover advantage in exporting its technology.

Further, the People’s Bank of China is also introducing technology that allows and promotes the digital yuan to be used in cross-border payments. This would permit China’s security agencies to surveil the financial activity of Chinese citizens and any foreign individuals or entities doing business with China. This surveilance ability may have major international security implications.

Transparency, Privacy, and Digital Currencies

The fundamental differences between decentralized digital currencies (aka most cryptocurrencies) and centralized digital currencies (CBDCs) lie in information control, privacy, and transparency. Most cryptocurrencies were created to move power away from one single organization to a network to avoid giving control to any single authority, such as a central bank. Transparency in decentralized digital currencies is critical. Everyone in the network can see all transactions made and received by any user since all the revenue streams are placed on a public chain, called the blockchain, which serves as a public ledger.

In the case of CBDCs, all transactional information is stored within the central bank and not shared. Unlike cryptocurrencies, CBDC transactions are not anonymous but subject to government monitoring. CBDCs are virtual like cryptocurrencies but issued by the government instead of the private sector (Prasad, 2021). The use of CBDCs is a trade-off between security and privacy. Because the central bank backs them, they are considered a secure investment.

Further, the People’s Bank of China determines the supply depending on the prevailing economic conditions, unlike cryptocurrencies, whose supply is limited. Central bank digital currencies require complete verification of the investor’s or purchaser’s identity, unlike cryptocurrency, which is attractive because of its anonymity. With CBDCs, the People’s Bank of China can monitor and hence regulate the use of the currency by any individual or business.

While free market advocates promote the idea of decentralized digital currencies, policymakers express concern that these currencies are vulnerable to abuse in funding terrorism and criminal activities. Many nations, therefore, see central bank digital currencies as the better alternative: digital money that can be conveniently used for transactions while providing the security that comes with its central bank issuance. Countries monitor transactions even with cash for financial and national security threats such as money laundering, terrorist financing and tax evasion. Additionally, governments set thresholds for customs declarations and cash transactions that trigger compliance regulations when they reach a certain volume (Pocher, N and A.Veneris, 2022). As the world moves increasingly toward cashless societies, financial and national security threats remain and may be exacerbated. Most nations, therefore, fall somewhere along the spectrum of privacy-transparency versus security trade-offs.

Privacy, Security, and Promotion of e-CNY

Despite hesitation among other large economies, China is forging ahead with its e-CNY project. It has ramped up the spread of digital currency and plans to position itself as the leader in CBDCs. The People’s Bank of China wants users to make offline payments with their digital wallets to spend e-CNY in remote areas of rural China or in-flight. Unlike conventional bank accounts, e-CNY wallets will likely reside within the internet of things devices, including home and vehicle sensors. While China’s payment system is largely dominated by WeChat and Alipay digital wallets, the government has found a balance to work with these private entities without completely clipping their wings.

The People’s Bank of China says a defining principle of the digital yuan is “controlled anonymity.”  PBOC Governor Yi Gang stated that the two-tier operation is designed to protect personal privacy and maintain financial security. He said the Central Bank, as the first tier, only processes inter-institutional transactions and thus does not deal with individual transactional information. Second-tier financial institutions provide digital currency exchange services to individuals and businesses, collecting personal information only as needed.

China argues that the two-tier structure will preserve the private sector’s well-established technological innovation and operational prowess, particularly given the size and complexity of China’s geography and economy. Instead of taking commercial banks out of the picture, the idea is to include them as the lower tier for the distribution of e-CNY through software applications. The private banks may gather information on their users and use that data only for target marketing purposes and to manage the users’ wallets to facilitate withdrawals and deposits.

While intended to be “cash-like,” the digital yuan is designed to allow the People’s Bank of China a degree of visibility and control that real cash does not permit. Each digital currency token would include a cryptographic algorithmic expression identifying the token’s owner and the purchase transaction. Not all data will be available to those transacting in e-CNY, but the data will be available to the Central Bank for security purposes. Thus, true anonymity does not exist, as currency registration and traceability are built into e-CNY transactions. That process, augmented by data mining and big-data analysis, provides the People’s Bank of China with the ability to have complete oversight over the use of the currency. While the argument forwarded is that this oversight will control tax evasion, money laundering, and terrorism financing, this may not be true as most illicit activity is not conducted over formal monetary channels.7

While the Central Bank desires scalability and increased adoption of e-CNY, people need more incentive to switch from popular digital wallets such as WeChat and Alipay. Therefore, the People’s Bank of China is using a mix of persuasion and arm-twisting to roll out the digital currency. It seeks to get citizens to participate in the e-CNY project by playing the safety and security card.8 It also uses promotional discounts to encourage increased use of e-CNY. The state-funded e-CNY network also offers businesses lower fees than the more established Alipay and TenPay network platforms.

In addition, there is talk of converting government and state-owned enterprise payrolls to e-CNY, forcing its increased use within China. More recently, the State Administration for Market Regulation (China’s antitrust regulator) has also launched regulatory actions against monopolies and e-commerce platforms to hasten the adoption of e-CNY. As a result, Ant Group was urged to give consumers more choices in payment methods. Following this, Tencent and Ant Group’s bank affiliates began fast-tracking the use of e-CNY by enabling the purchase of the digital yuan. As large Chinese tech companies start partnering with state-owned banks in pilot projects facilitating the consumer use of the e-CNY, this could impact the data gathered by Alipay and WeChat Pay and reduce their market share in payment platforms.


The digital yuan offers China more than just fine-tuned monetary policy and improved anti-money laundering software. Using e-CYN gives the CCP unparalleled insight into the Chinese people’s finances and significant levers to carry out punitive state action. In addition to basic information about users and transactions, various metadata associated with users’ movements and devices could also be infused with big data. Increased use of the e-CNY has huge implications for the financial world as it enables the creation of the largest database of centrally governed transactions (Hoffman et al., 2020). The People’s Bank of China will possess a trove of information on its users, providing tools for censuring and surveilling individuals. The Central Bank’s e-CNY vision is summarized by President Xi Jinping’s claim that it is necessary to strengthen omnidirectional supervision, standardize all types of financing behavior, and seize the opportunity to launch special programs for financial risk regulation.9

Given a world driven by data, e-CNY is a double-edged sword. The use of e-CNY promises to be more inclusive, providing more people and firms easy access to financial services. Concurrently, it raises fears about the central bank having access in granular detail to the movement of money among individuals and businesses, creating concerns about its implicit use as a surveillance tool by the government. To alleviate such fears, China passed an omnibus privacy law, the Personal Information Protection Law (PIPL), in November 2021, designed to regulate online data and protect personal information. The PIPL followed closely on the heels of China’s Data Security law enacted in September 2021. The latter applies to a wide range of data processing activities, including processing personal information. The scope and penalties of any violations are expected to be complex and detailed for the PIPL when doing business in China.

In addition to privacy and transparency concerns, in expanding the use of the e-CNY in cross-border payments, China hopes to establish itself as a leader in the global digital currency race. In doing so, one of the motivations may be to undermine the dominance of the U.S. dollar in international payments. Moreover, internationalizing the e-CNY may help China circumvent any sanctions imposed by the United States and its partners. China’s innovations surrounding the e-CNY are changing the financial landscape at home and forcing its competitors abroad to acknowledge China as a new powerful, innovative force in the digital currency space.


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  2. Kumar, Ananya, “A Report Card on China’s Central Bank Digital Currency: the e-CNY” March 1, 2022,
  3. Committee on payments and market infrastructures, markets committee, “Central bank digital currencies, Bank for International Settlements, March 2018.
  4. These new regulations resulted in Jack Ma, Alibaba’s founder spinning off Alipay from the Alibaba Group that Yahoo and Softbank funded to his own privately operated firm. (;
  6. The authorized intermediaries of the e-CNY app include the Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Postal Savings Bank of China, and China Merchants Bank.
  7. Bank for International Settlements: Central bank digital currencies, March 2018,
  8. Guanxi is a Chinese concept of networking wherein tight social networks and informal relationships rule all businesses and social activity in China. An almost automatic trust exists between people in the same guanxi, but trust is never assumed outside of it. So, distrust becomes a default — only if one is certain that a new relationship will not threaten, but rather preserve, the interest of one’s closest relationships will trust then be given (Cremer, De David, Understanding Trust, In China and the West, Harvard Business Review, February 2015. )
  9. Central Economic Work Conference Held; Xi Jinping and Li Keqiang Give Important Speeches, 2021,