WeChat Introduces Digital Yuan Payments Ahead of the Winter Olympics: Here’s Why E-CNY may Shape the Future of Monetary Transactions

WeChat, a chat app developed by Tencent Holdings, was made compatible with Digital Yuan ahead of the 2022 Winter Olympics.

WeChat is the largest chat app in the world with more than 1.2 Billion users, a large percentage of whom are Chinese nationals.

WeChat introducing payments via E-CNY makes the currency much easier to use for users across China.
The government has made the Digital Yuan available in 10 pilot cities including Shanghai and Shenzhen, and also the Olympic venues. This will allow foreigners the convenience of making monetary transactions during the Olympics without needing a money changer.

The Digital Yuan App is available for download as iOS and Android versions making it accessible to anyone. Once a user has downloaded the app, they can then create a Digital Yuan wallet with WeBank – the virtual bank backed by Tencent. The WeBank wallet must then be linked to their WeChat account to enable payments.

Setting up an account is as convenient as it is fast and easy to use. Most users who were already accustomed to making payments through WeChat do not report a difference in ease of use when paying with E-CNY.

Alipay, China’s second largest payment app by Ant Group, a subsidiary of Alibaba Group Holding Limited (BABA) is also running tests for making Digital Yuan payments possible in the future.

Major Chinese businesses are quickly adopting Digital Yuan payments. Since the introduction of E-CNY in 2020, the number of Digital Yuan accounts set up by individual users exceeds 261 Million. This number is set to increase in the near future as the Chinese government begins expanding E-CNY rollout across more cities countrywide. 

Secure Payments are a Priority With E-CNY

The Digital Yuan issued by the People’s Bank of China (PBOC) guarantees a mode of more secure payments online. Using E-CNY erases all counterparty risk that comes with using Credit Cards or other E-Wallets principally used for online transactions. As all Digital Yuan accounts are secured with the PBOC, China’s Central Bank, users need not fear the sudden discontinuation of services by a financial intermediary, or the risk that comes with involving too many of them facilitating online payments.

The Digital Yuan system collects less transaction information than conventional electronic payment systems. There is Managed Anonymity with Digital Yuan transactions: large transactions are traceable; small transactions are anonymous. This has been implemented with the vision of mitigating money laundering risks and other financial fraud.

The Digital Renminbi system does not pass on transaction information to third parties or government agencies unless it is legally mandated by specific laws and regulations. The PBOC firmly adheres to information security and privacy protocols with E-CNY related information. The Central Bank of China essentially “sets up a firewall” around Digital Yuan transaction information by designating special personnel to manage it, applying a layered authorization system, conducting internal audits, and putting in place the correct procedures to manage any probable risks of errors or malpractice. Any random requests for information or its use is strictly prohibited. The multi-tiered security system has been established to assure a safe transaction process for the Digital Yuan from start to finish. This way any risks that may arise become more manageable. Efforts to maximize transaction security by the PBOC make double-spending, illegal duplications, transaction falsifications or repudiations, and counterfeiting almost infeasible. The digital certificate system, the digital signature, and encrypted storage used by E-CNY are currently highly effective against any possible errors or misuse.

Why did China not choose a cryptocurrency?

The primary disadvantage of a cryptocurrency is the inherent lack of a central regulatory system. Modulating the amount of money in circulation in an economy is crucial to managing inflation and disinflation (deflation). Inflation occurs when an economy has more money than goods; Deflation occurs when there is not enough money for all the goods available.

It is widely known that most crypto transactions are used to facilitate illegal activities such as money laundering. Around 40% of Bitcoin transactions were used for illegal purposes. Such lack of regulation and risks posed towards a country’s economy make cryptocurrency unviable for mass adoption. 

Why E-CNY is not competition for WeChat Pay or Alipay

The Digital Renminbi is simply a CBDC (Central Bank issued Digital Currency), the first of its kind in the world. It is a digital version of the fiat currency issued by the PBOC. Its current job is to replace some of the cash, coins, and traditional electronic money in circulation within the economy. Its goal is to replace conventional fiat money in its entirety when the conditions for it are met among the Chinese population. We will discuss this in detail later. Physical cash and coins are a very large expense on a country’s budget. The Digital Yuan is an effective solution for this issue.

The E-CNY is not issued directly to consumers through the Central Bank. They are issued through PSPs (Payment Service Providers) which includes Commercial Banks and other payment platforms, such as WeChat and Alipay, that facilitate transactions and online payments. WeChat and Alipay are third party payment system companies and their job is to ensure that monetary transactions go through quickly and efficiently. 

The Digital Yuan will set the Stage for CBDCs and the Future of Money

The E-CNY will reduce the cost of cross-border payments and trading when used to facilitate overseas payments. This is because the reliance on intermediary bodies that enable these international transactions – such as SWIFT – maybe completely eliminated. Thus, the cost of cross-border monetary transactions will also be vastly lower. Once the Digital Yuan is open for international transactions, the process of cross-border payments will become more secure as it will include fewer intermediary steps and is more direct to and from China.

Users will be able to make transactions with E-CNY even without internet access via NFC technology (Near-Field Communications Technology).

The use of Hard Wallets are also being tested out by the PBOC since January 2021. Users with trouble adjusting to new tech may simply swipe their hard wallets with their mobile device to make E-CNY payments, rather than using a digital wallet or the test digital yuan app. Many Chinese banks have released hardware prototypes for hard wallets that support Digital Yuan payments. The issuance and usability of these hard wallets are still being tested out. Nonetheless, it shows favorable prospects for the mass adoption of the E-CNY across China.

WATCH: How the Digital Yuan is Gaining Traction in China in 2022

1 thought on “WeChat Introduces Digital Yuan Payments Ahead of the Winter Olympics: Here’s Why E-CNY may Shape the Future of Monetary Transactions

Comments are closed.