China had hoped that the Winter Olympics would be a game-changer for the digital yuan, providing a global stage to showcase its prowess in financial innovation.
Instead, geopolitical tensions, the pandemic and China’s insistence on ending all traces of Covid-19 are spoiling the party, in a blow to one of the most ambitious digital currency projects on the planet.
China is already on the cusp of becoming a cashless society, but the vast majority of these electronic transactions take place on privately owned apps, beyond the immediate reach of the state.
An official yuan would change that, giving Beijing an unprecedented amount of information about what and where people are spending money.
The world’s second-largest economy has been testing the digital yuan in Chinese cities for the past two years as it prepares for a national rollout that could put China ahead of Europe and the United States in the global race to develop a state-backed digital currency. .
The timetable for this national launch has yet to be decided, but it is almost certain that Beijing intended the Olympics to be a major milestone on the road to widespread use.
Beijing has been pushing companies — including big Western companies like McDonald’s and Nike — to allow customers to use the digital yuan during games. The digital version of the currency is one of only three payment options that foreign athletes and others have at sports venues and the Olympic Village, in addition to cash and Visa payments.
And last year, Beijing said it would make it easier for foreigners to use the digital yuan during the Games, giving athletes ski gloves and smartwatches with integrated payment functions, and eliminating the requirement to open a local bank account if they wish to use it. the coin.
As the event approaches, though, these efforts may land with a thud. Beijing is barring most fans from attending the Games and has built an elaborate quarantine “bubble” to separate Olympic athletes, officials, journalists and support staff from the rest of the city as fears of coronavirus outbreaks persist.
Western lawmakers are also warning their athletes against using the digital yuan out of distrust of the Chinese government, including concerns about espionage.
“The Olympic Games would have been the first real chance for Chinese tourists and citizens to become familiar with the digital yuan, but that door closed when the Chinese government decided to severely restrict the number of Olympic spectators,” said Craig Singleton, Senior China Member at the Foundation for the Defense of Democracies, a DC-based research institute.
“This decision alone, more than anything else, is likely to further delay mass adoption of the digital currency.”
A silent international debut
Chinese companies and government officials have been touting the Games as an opportunity for the digital yuan in recent weeks, even as it has become obvious that participation will be minimal.
“Launching the digital yuan at a big party like the Winter Olympics can show the world China’s latest fintech achievement,” Li Xin, business manager of the Bank of China’s digital yuan unit, told state broadcaster at the beginning. Of this month. The state bank is the official banking partner of the Beijing Games.
Several factors are hampering widespread adoption. Authorities have created one of the most complex Covid-19 quarantines ever made. Officially known as the “closed-loop system”, the restrictions will apply to around 11,000 people around the world, isolating them from the general Chinese population.
Anyone – Chinese or foreign visitor – who is not part of this system is barred from participating in the Games, further limiting the scale of the spectacle.
Political tensions can also complicate the situation. Last July, three US Republican senators urged the US Olympic and Paralympic Committee to ban US athletes from “receiving or using the digital yuan during the Beijing Olympics”. The committee did not respond publicly.
But it would have advised U.S. athletes to bring disposable or disposable phones to the Olympics in China because of possible surveillance, the report said. Wall Street Journal earlier this month. Several other countries, including the UK and Canada, have offered similar advice to their athletes, according to Reuters.
Even though many of those attending the event will use the digital yuan, “it will not have a significant impact on overall transaction levels,” said Scott Kennedy, senior advisor and director of Chinese business and economics at the Center for Strategic Strategies. and International Studies.
struggling for traction
The digital yuan is already struggling to gain traction in China. Transactions with the currency totaled just $8.37 billion in the second half of 2021, equivalent to $1.4 billion per month.
While this marks some progress after two years of testing, it is still far from posing a serious challenge for privately owned digital payment apps.
Ant Group, for example, revealed in its 2020 stock exchange filings that its Alipay app processed $1.6 trillion on average each month — more than a thousand times the monthly transaction volume of the digital yuan.
After initially limiting the use of digital yuan wallets to winners of a sweepstakes, the Chinese government has made it easier for the public to try virtual money.
Earlier this year, for example, Bank of China launched a wallet app on Apple and Android stores that can be used in 10 cities and regions that are testing the currency, along with Olympic venues. This pilot app is now available to everyone in these areas, not just lottery winners.
The central bank released rising numbers among its test users last year as a sign of the digital yuan’s success. By the end of December, the app had been downloaded by 261 million people, or 19% of China’s population, according to central bank data.
But there are still barriers to using the money as well. Outside of the Olympics exemption for foreigners, people who want to trade with the digital yuan need to download and sign up for the central bank’s app and add money from their accounts at one of the designated Chinese banks.
The currency also cannot be used outside of the 10 cities and regions that are testing it, along with participating Olympic locations.
Consumers seem to have a “reluctance to embrace” currency at the moment, according to Frank Xie, a professor at the University of South Carolina Aiken who studies Chinese business and economics.
Experts cited the lack of incentives as one of the main reasons for the lack of enthusiasm.
“The ecosystems that were built a decade ago around big tech companies are unbeatable in terms of network and convenience,” said Martin Chorzempa, a senior researcher focusing on innovation and Chinese fintech at the Peterson Institute for International Economics. After all, industry leaders Alipay and WeChat Pay already have hundreds of millions of users familiar with their services.
“The payment experience doesn’t often feel different or better to most users than what’s already on offer,” he added.
Xie also suspected that concerns about the loss of privacy could be a factor, adding that “even ordinary citizens” have realized the scope of the government’s power.
Changing spending patterns
The government has a few options to pressure consumers to change their spending patterns, according to Singleton of the Foundation for the Defense of Democracies.
“Over time, it is possible that people will see greater adoption of the digital yuan to pay certain expenses, such as utility bills, transportation, or other government-managed bills, simply because the government can force these changes on consumers.” he said.
Analysts also raised the possibility that the government could request privately owned apps to actively promote the state-backed yuan.
This is already starting to happen: Alipay started testing yuan digital payments last year, and Tencent said earlier this month that it would also start supporting digital yuan in its WeChat Pay wallet.
“You are actually asking these providers to potentially cannibalize their own systems, allowing customers to use the digital yuan instead of their own existing payment options,” said Kimmo Soramäki, founder and CEO of analytics firm Financial Network Analytics. , based in London.
These companies may feel like they have little choice, however. China’s push for digital currency dovetails with its regulatory crackdown on Big Tech.
The Ant Group and Tencent are under intense scrutiny and were forced to overhaul their businesses or pay hefty fines as Beijing sought to reduce their power.
“The launch of future versions of AliPay and WeChatPay is likely to be avoided, which in turn will limit the power wielded by these big tech companies,” said Singleton, who added that the government hopes its regulatory hurdles will allow the digital yuan to “surpass these other payment systems”.
However, if Beijing does finally secure wider adoption of its state-backed digital currency, there seems to be at least one certainty: The Beijing Winter Olympics is not shaping up to be the stage for digital yuan bragging rights. that the authorities could expect.
This content was originally created in English.
original version
Source: CNN Brasil
I am Sophia william, author of World Stock Market. I have a degree in journalism from the University of Missouri and I have worked as a reporter for several news websites. I have a passion for writing and informing people about the latest news and events happening in the world. I strive to be accurate and unbiased in my reporting, and I hope to provide readers with valuable information that they can use to make informed decisions.
