e-YUAN

Context

About e-Yuan

• China launched its digital currency, the e-yuan at the Beijing Olympics in February 2022, after running a series of pilot projects in major cities.
• The e-yuan operates through digital wallets, much like the Chinese digital payment platforms of Alipay and WeChat.
• But it is issued and managed by the Peoples' Bank of China (PBOC), The Central Bank.

Objective

• The objective is to permit real-time foreign exchange transfer on a 24x7 basis.
• The system ought to permit no disruption, interoperability and compliance with local news and regulations relating to financial transactions.
• Once it has been made Operational among these partners, it could then invite other central banks to participate.

Key Points

• It is reported that currently there may be over 140 million e-yuan wallets in use by individuals and 10 million by the business.
• The transaction value achieved is about 10 per cent of the total, compared to the 90 per cent still conducted through Alipay and WeChat.
• Interoperability is present among the Platforms.
• Alipay handles 544,000 transactions per second (TPR) against a mere 10,000 TRP for the e-yuan, the digital sovereign currency has still a long way to go.
• The PBOC has let it known that e-yuan will be developed without impacting financial intermediation by banks which will continue to receive deposits and pay interest on savings.
• e-yuan does not offer any Interest.

 The debate over Two key Issues

1. Concerning the collection, scrutiny and protection of data generated through the e-yuan wallets. In theory, the state would have access to the spending behaviour of all e-wallet users and this would enable even more pervasive surveillance of wallet users.

1. The issue of privacy is being raised both concerning the private payment platforms and the state-run platforms.
2. There's a great concern over the state's access to the data and this may be slowing the adoption of the e-yuan.
3. There appears a greater trust in private platforms, but the state has a legal right to all the data gathered by them.

1. China is averse to adopting a fully convertible currency with no controls over capital flows.
2. It wants to achieve internationalisation without risking volatility and capital flight.

Cross-border payment system 

• A cross-border payment system is currently being tested in a pilot involving China, Hong Kong, Thailand and UAE.
• It is known as the Mulitple Central Bank Digital Currency (MCBDC).
• In effect, an alternative cross-border payment system would be established bypassing the US dollar-based system.
• Russia has not been invited to take part in this pilot but perhaps its participation is discreetly taking place.
• This is still a work in progress but China is way ahead of other major economies, including the US.
• China has been alarmed by the imposition of sweeping economic and financial sanctions against Russia in the wake of the latter’s aggression against Ukraine.
• This has given a serious impetus to the e-yuan project, in particular its possible role in the internationalisation of the Chinese currency and the establishment of an alternative international payment system free of the US and Western domination.
• Many other countries would be attracted to this initiative because there is general unhappiness over the American unilateral resort to economic sanctions in pursuit of its geopolitical aims.

Indian Perspective 

• India would welcome a financial order that does not give any particular country an inordinate influence and ability to inflict unilateral economic pain on others.
• It would also enable India to shape the contours of the new financial architecture in line with its interests.
• It had been able to do in the establishment of the Asia Infrastructure Investment Bank and the BRICS Development Bank.
• India has already announced its intention to create its digital rupee.
• This project should also take into account the possibilities of its participation in an international digital payments system.
• It may reduce transaction costs but also provide a rule-based digital global financial system.
• One should not pursue a digital sovereign currency merely because other countries are racing to adopt it.
• There needs to be a careful examination of the pros and cons from India's perspective.
• India's cordial relations with the UAE and Thailand should enable us to get a sense of how this initiative is unfolding even if it is premature to seek active participation in it.

Conclusion