Digital Payments and Currencies in China. They’re Faster.

The following is a guest post from John Browning, founding partner of Hong Kong commodity and financial futures broker BANDS Financial. In reporting on the state of and statistics on the Chinese economy, Browning follows the development of a digital currency by China’s central bank. See our post Constructing the Future of Money for an introduction. This post, an excerpt from Browning’s  12-06-2020 Letter from Shanghai, provides an update and a Chinese contrast to contactless payments as we know them in the West.

At the weekend, I caught up with the remarks of Dan Schulman, chief executive officer of PayPal, in which he observed the use of digital currencies is set to go mainstream as more merchants take a “digital-first” approach to payments. More customers are starting to use digital wallets, which “are natural complements to digital currencies.”

Outside of China, the virus has prompted a lurch towards contactless payments using swipe cards, etc, and of course, for online-shopping, buyers are using debit and credit cards. But I note, in none of my online purchases for Christmas on UK sites was I offered the “Scan-the-QR-code-debit-straight-into-your-on-line-wallet-or-bank-account-using-facial-recognition-as-confirmation-technology” that I have here.

As for money, you can hold it on your phone in the digital wallet offered by WeChat or Alipay or in your bank account. But paper notes in China are soon to be museum pieces, as even the lowest street vendors, the last bastion of what you would expect to be the cash economy, stand like conference attendees with laminated QR codes on lanyards around their necks. Even finding a working ATM requires the detective skills of Sherlock Holmes as they have been removed from their usual venues through lack of use.

So, it is with some interest that I note the press release from the Hong Kong Monetary Authority (HKMA) “The HKMA and the Digital Currency Institute of People’s Bank of China are discussing the technical pilot testing of using e-CNY, the digital renminbi issued by the PBoC, for making cross-border payments, and are making the corresponding technical preparations.”

As long-term readers are aware the PBOC has been developing its DCEP product (Digital Currency Electonic Payment) since 2014 and has recently been field testing, executing $300m of transactions in various major cities including Hong Kong’s immediate neighbour Shenzhen. Interestingly enough, a DCEP user does not need a bank account, only a DCEP wallet.

Unlike the resistance in China, Chinese RMB as cash is accepted in the largest HK stores and supermarket chains, till receipts sometimes showing both HKD and RMB amounts. But the exchange rate is poor, trading at up to 20% under market rates. A Chinese tourist with a DCEP wallet on his phone will be an entirely different matter and will expect to receive accurate market rates with no fees.

The HKMA recognise that point in its press statement “As the renminbi is already in use in Hong Kong and the status of e-CNY is the same as cash in circulation, it will bring even greater convenience to Hong Kong and Mainland tourists.” One can only agree, but on the other hand, perhaps the HKMA fails to recognise, an HK resident with a DCEP wallet presents a challenge to the Hong Kong Dollar itself.