e-CNY payment becomes available offline

The People's Bank of China (PBOC) has added a feature to its yuan digital payment app that allows users to continue making offline payments using the central bank's digital currency (CBDC) from their NFC-enabled Android smartphone even if their device is not powered.

FACTS

• Once they activate the tap to pay feature in the app, users can set a limit on the number and value of digital yuan payments that can be made from their smartphone when its battery is low or there is no internet connection.

•  The function uses the NFC technology of a smartphone. The PBOC had conducted tests on NFC "hard wallets" and NFC wearable devices in January 2021.

• The system is available with Android-based mobile phones and will be available on other handsets in the future

• Users can find the internet or powerless payment function in the payment settings of the e-yuan app.

• However, this option has raised security concerns, especially about whether others could spend money using a lost or stolen mobile phone. But a code must be entered to verify the payment and the option can be disabled remotely from the e-yuan application.

• The app, however, limits these types of payments to a payment amount of 500 RMB and a volume of up to 10 transactions while remaining within the app's settings for better security. For now, this feature is only available for certain payment scenarios and limited geographical areas.

CHALLENGES

• Promoting financial inclusion: Transforming the e-yuan application into a "hard wallet" should meet PBoC's goal of greater financial inclusion while further pushing the use of its CBDC. In addition, it will also help the unbanked and the elderly to access cashless payments in a much simpler way.

• Boosting the use of its digital currency: By the end of 2022, Chinese citizens had spent about $14 billion in digital yuan, the People's Bank of China reported. The 13.61 billion e-CNY in circulation represent only 0.13% of the 10,470 billion yuan in circulation at the end of 2022. Analysts say these figures reveal a "low and very inefficient" usage.

MARKET PERSPECTIVE

• While China was one of the first major economies to promote the use of CBDC, it is being followed by other countries such as Turkey, which has just announced the launch of a blockchain-based digital identity application project, shortly after its central bank completed its first CBDC tests.

• Not to be left out of the digital asset loop, the UK government is beginning to position itself on the issue of central bank digital currencies.  The UK Treasury is planning to hold a public consultation in the coming weeks to see whether or not the roll-out of such technology is desirable.

• Offline payment is a feature that also exists on Apple devices. The Apple Pay Express function allows travellers to pay for their ticket using Open Payment on Lyon's public transport system (TCL).