China is to start paying the salaries of some civil servants and public officials using its central bank digital currency (CBDC), it was reported today. The current take up of the digital yuan is unclear as statistics have not been published for more than six months. One effect of the staff payment initiative will be to boost the Chinese CBDC adoption figures.
Digital yuan pilots
Starting in May, all civil servants and public officials in Changshu – a city with 1.5 million people in Jiangsu province – will begin to receive the full amount of their wages in CBDC. The initiative is part of China’s broader efforts to increase the uptake of its digital RMB across a range of sectors.
Many cities have also introduced eCNY giveaways to boost consumption among tourists and local residents. However, these have only shown moderate success.
Accelerating take off
Like other CBDCs, the digital yuan has faced significant challenges in encouraging people’s widespread adoption. The latest statistics from August 2022 indicated that transaction numbers and volume were still increasing, but the average transaction value was falling. Additionally, China’s central bank last updated the number of personal wallets in December 2021.
One reason behind the slower growth rate could be the high level of competition with private wallet service providers, such as Alipay or WeChat Pay. These companies have long serviced Chinese consumers, and although the government has aimed to complement them, the digital RMB has struggled with retention when giveaways and other incentive programs end.
Therefore, the central bank may use the eCNY to pay government salaries to encourage faster adoption and bump up official statistics. China has a massive public sector compared to its Western counterparts, so this could be a game changer. According to the Petersen Institute, state firms comprise 57% of large listed firms in China.
Privacy concerns
On the one hand, some suspect if wages are paid using a CBDC, then every payment the person makes will be tracked. However, the wage earner can always switch from the CBDC into a bank account if they wish.
In any case, China can already monitor payments in real time without the help of CBDCs.
Other projects
Aside from its domestic CBDC trials, China has been involved in wholesale applications for cross-border digital payments. The multi-CBDC MBridge pilot has recently shown promising potential applications, including trade payments, that could help China encourage the digital yuan’s internationalization.
