China’s Digital Yuan Adoption Faces Challenges Amidst User Reluctance and Strong Competition, Says Shanghai University Director

China’s ambitious rollout of its central bank digital currency (CBDC), the digital yuan, is facing significant hurdles in user adoption, according to Charles Chang, the director of the Fintech Research Centre at Fudan University in Shanghai. In an interview with the South China Morning Post on December 1, Chang identified key “bottlenecks” hindering the widespread use of the digital yuan, including consumer reluctance and fierce competition from well-established payment platforms like Alipay and WeChat Pay.

Despite the digital yuan's potential to revolutionize China’s financial system, Alipay and WeChat Pay dominate the country’s mobile payment landscape, with entrenched user bases that make it difficult for the digital yuan to gain traction. Chang highlighted that convincing users to transition to a new digital currency, especially when they are already accustomed to the convenience and familiarity of these existing services, remains a substantial challenge for Beijing.

The digital yuan was first introduced in pilot trials in select Chinese cities in 2019 as part of China’s broader ambition to position itself as a leader in the global CBDC space. The People’s Bank of China (PBOC) has since expanded the digital yuan trials, with testing now reaching 26 regions across 17 provinces. However, there is no clear timeline for a nationwide rollout of the currency.

As of mid-2024, the digital yuan has seen a notable rise in usage, with cumulative transactions totaling 7 trillion yuan (approximately $968 billion) by June 2024. This growth marks a significant leap from previous years, demonstrating growing interest in the state-backed digital currency. However, despite the progress, experts like Chen Zhiwu, a professor of finance at the University of Hong Kong, caution that the digital yuan faces inherent challenges in overcoming the broader limitations of the yuan's global appeal.

Furthermore, Chang acknowledged that while Beijing is actively pushing the digital yuan, there are complications within the rollout, including issues stemming from corruption allegations against Yao Qian, the former head of the PBOC’s Digital Currency Institute. These challenges could potentially slow the adoption of the digital yuan, though Chang emphasized that the central government remains committed to its implementation.

In the face of this competition, the future of the digital yuan depends on overcoming these hurdles, including educating the public about its advantages, increasing its adoption among consumers, and integrating it seamlessly with existing financial systems. Despite these difficulties, China's digital yuan initiative represents a bold step toward a fully digital financial system, which could have far-reaching implications for the global economy.