The Beijing Olympics won’t be the splashy launch China wanted for its digital currency

China is already on the verge of becoming a cashless society, but the vast majority of these electronic transactions occur on private apps, outside the immediate jurisdiction of the state. An official yuan would change that, giving Beijing an unprecedented amount of information about what people are spending their money on and where.

The world’s second-largest economy has been testing the digital yuan in Chinese cities for two years, as it prepares for a nationwide rollout that could put China ahead of Europe and the United States in the global race to develop a state-backed digital currency. .

The schedule for this national launch has not yet been decided, but Beijing almost certainly wanted the Olympics to be a milestone on the road to widespread use.

Beijing has pressured companies, including major Western companies such as McDonald’s (MCD) and Nike (NKE) – to allow customers to use the digital yuan during games. The digital version of the currency is one of only three payment choices foreign and other athletes have at sports venues and the Olympic Village, apart from cash and Visa payments. And last year, Beijing said it would make it easier for foreigners to use the digital yuan during the Games by giving athletes ski gloves and smartwatches with built-in payment functions, and removing the required to open a local bank account if they so wished. use currency.

As the event approaches, however, these efforts can land with a thud. Beijing has banned most fans from attending the Games and has built an elaborate quarantine ‘bubble’ to separate Olympians, officials, journalists and support staff from the rest of the city amid fears of coronavirus outbreaks. coronavirus persist. Western lawmakers are also warning their athletes against using the digital yuan out of distrust of the Chinese government, including espionage concerns.

“The Olympics would have been the first real chance for tourists and Chinese nationals to get acquainted 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 Researcher at the Foundation for Defense of Democracies, a Washington-based research institute.

“This decision alone, more than anything else, will likely further delay the mass adoption of digital currency.”

The digital yuan is one of only three payment choices foreign athletes and others have at sports venues and the Olympic Village, apart from cash and visa payments.

A lackluster international first

Chinese companies and government officials have touted the Games as an opportunity for the digital yuan in recent weeks, even as it has become clear attendance will be minimal.

“Launching the digital yuan on a big party like the Winter Olympics can introduce China’s latest fintech achievement to the world,” said Li Xin, chief commercial officer at Bank of China (BAHF) digital yuan unit, the state broadcaster said earlier this month. The public bank is the official banking partner of the Beijing Games.

Several factors make widespread adoption difficult. Authorities have created one of the most complex Covid quarantines ever attempted. Known officially as the “closed-loop system”, the restrictions will apply to some 11,000 people around the world, isolating them from the wider Chinese population.

Any person – Chinese or foreign visitor – who is not part of this system is banned from attending the Games, which further limits the scale of the spectacle.

Political tensions could also complicate the situation. last July, three U.S. Republican senators have urged the U.S. Olympic and Paralympic Committee to ban U.S. athletes from “receiving or using the digital yuan during the Beijing Olympics.” The committee did not respond publicly. But he reportedly advised American athletes to bring disposable or burn-in phones to the Olympics in China due to possible surveillance, The Wall Street Journal reported earlier this month. Several other countries, including the UK and Canada, have offered similar advice to their athletes, according to Reuters.

Even though many people attending the event are using the digital yuan, “it won’t make a significant dent in overall transaction levels,” said Scott Kennedy, senior advisor and chairman of the board of business and Chinese Economy at the Center for Strategic and International Studies.

The digital yuan is available in 10 cities and regions, but experts cite a lack of incentives as one of the main reasons for slowing enthusiasm.

Fight for traction

The digital yuan is already struggling to gain ground in China. Transactions using the currency totaled just $8.37 billion in the second half of 2021, or $1.4 billion per month.

Although this marks progress after two years of trials, it is still far from posing a serious challenge for private digital payment applications.

Ant Group, for example, revealed in 2020 stock filings that its Alipay app processes an average of $1.6 trillion 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 raffle winners, the Chinese government has made it easier for the public to try virtual money. Earlier this year, for example, the People’s Bank of China launched a wallet app on Apple and Android stores that can be used in 10 currency-piloting cities and regions, as well as Olympic venues. This pilot application is now available to everyone in these areas, not just lottery winners.

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Central bank touted growing number of trial users last year sign of the success of the digital yuan. By the end of December, the application had been downloaded by 261 million individuals, or 19% of China’s population, according to central bank data.

But there are also barriers to using the money. Apart from the Olympic exemption for foreigners, people who want to trade with the digital yuan must download and register for the central bank’s app, then add money from their accounts in one designated Chinese banks.

The currency also cannot be used outside of the 10 cities and regions that drive it, as well as participating Olympic venues.

Consumers seem to have a “reluctance to accept” the currency right now, according to Frank Xie, a professor at the University of South Carolina Aiken who studies Chinese business and economics.

Experts have cited the lack of incentives as one of the main reasons for the lack of enthusiasm.

“The ecosystems that have been built over a decade around big tech companies are unbeatable in terms of network and convenience,” said Martin Chorzempa, senior researcher specializing in Chinese financial innovation and technology at the Peterson Institute for International Economics. After all, industry leaders Alipay and WeChat Pay have already hundreds of millions of users who know about their services.

“The checkout experience doesn’t tend to feel any different or better to most users than what’s already on offer,” he added.

Xie also suspected concerns over a loss of privacy could be a factor, adding that “even ordinary citizens” have become aware of the reach of government power.

Changing spending habits

The government has some options to push consumers to change their spending habits, according to Singleton of the Foundation for Defense of Democracies.

“Over time, people may see increased adoption of the digital yuan to pay for certain expenses, such as utility bills, transportation, or other government-run bills, simply because the government might impose these changes to consumers,” he said.

Analysts have also raised the possibility of the government requiring private apps to actively promote the state-backed yuan. It’s already starting to happen: Alipay started testing digital yuan payments last year, and Tencent said earlier this month that it would also start supporting digital yuan in its WeChat Pay wallet.

“In effect, you are asking these providers to potentially cannibalize their own systems by allowing customers to use the digital yuan instead of their own existing payment options,” said Kimmo Soramäki, founder and CEO of the analytics firm. London-based Financial Network Analytics.

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However, these companies might feel like they have few options. China’s push for digital currency goes hand in hand with its regulatory crackdown on Great technology. Group of ants and Tencent (TCEHY) were subjected to intense scrutiny and have been forced to either reshuffle their businesses or pay hefty fines as Beijing seeks to limit their power.

“The rollout 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 “leapfrog these other payment systems.” .

However, with Beijing eventually gaining wider adoption for its state-backed digital currency, there seems to be at least one certainty: the Beijing Winter Olympics are not shaping up to be the stage for the bragging rights of the digital yuan than the authorities could have hoped for.