China's CBDC project, better known as the Digital Yuan, is at a crossroads that could lead to the project being abandoned, due to various development, infrastructure and corruption issues.
The digital yuan, also known as e-CNY, is now at a crossroads that could lead to the project finally being shut down. All this despite the fact that China has not only been a pioneer in the development of central bank digital currencies (CBDC), but also has the most mature and largest project in this regard.
Let us remember that China has been studying the development of its CBDC since 2014, at which time the PBOC (Bank of China) He formed a working team led by Yao Qian, who became the main driving force behind the digital yuan. By 2019, the project had completed the initial stages of development and was ready for testing. However, the results have been disappointing, which, along with low adoption and corruption scandals surrounding the project and its leaders, is threatening its success.
Low adoption: an insurmountable obstacle
Thus, the first major obstacle to the digital yuan has been the low adoption and reluctance to use this type of money compared to proprietary options such as WeChat Pay. Despite the Chinese government's efforts to promote the digital yuan, public adoption has been low. In fact, in a test conducted in 2022, several state employees received their salaries in digital yuan, but most chose to transfer the funds to their traditional bank accounts or transfer them to WeChat Pay to convert them into cash or more widely accepted digital money. A behavior that reflects citizens' distrust of the new currency.
Added to this is the fact that the digital yuan project has suffered an additional blow with the recent expulsion of Yao Qian from the Communist Party and from public office. Yao, who was accused He was considered the face of the project for using his influence to benefit technology companies in exchange for bribes. His downfall has raised questions about the integrity of the program and raised questions about the presence of corrupt practices in its development.
At the same time, Yao Qian’s case highlights the risks of corruption in CBDC governance. Because while these digital currencies are designed to improve transparency and reduce fraud, Yao’s corruption scandal reveals that vulnerabilities still exist, especially when it comes to the possibility of important officials abusing their power. And China has understood this, leading Chinese leaders to re-evaluate the project and consider a possible reorientation towards fostering the growth of private companies.
Technical and infrastructure challenges
But beyond this, the project has also faced technical and infrastructure challenges. Implementing a CBDC requires a robust and secure technological infrastructure that can handle large-scale transactions and ensure user privacy. Although China has invested significantly in the underlying technology, there are still concerns about the system's ability to operate efficiently and securely.
For example, the e-CNY app has been criticized for its functional limitations and privacy concerns. Users report issues with the user interface, transaction speed, and lack of investment options. These technical challenges may discourage users and hinder mass adoption of the digital yuan.
Goodbye to the great Chinese CBDC?
The failure of the digital yuan not only has economic implications, but also political ones. China has promoted the digital yuan as a tool to strengthen its global influence and reduce dependence on the US dollar. However, low adoption and corruption scandals are weakening this narrative.
In response, the Chinese government has attempted to reorient the narrative, presenting the digital yuan as a supplementary payment option rather than a revolutionary system. However, this reorientation has been interpreted by some critics as a tacit acknowledgement of the project’s problems. Despite these challenges, China is pressing ahead with its efforts to internationalize the digital yuan through initiatives such as the Belt and Road Initiative and the Regional Comprehensive Economic Partnership.
Moreover, during the last meeting of the BRICS In 2024, China's CBDC shined as a viable option for the exchange currency for the group. But with this, it can be clearly said that a strong nail has been delivered to the coffin of this option, which would mean another failure for the international group in its attempt to dethrone the dollar since its creation in 2009.
Whatever the case, the future of the digital yuan is now more uncertain than ever. Although China has shown a willingness to continue with the project, low adoption, corruption scandals and technical challenges remain significant barriers.
