Digital Yuan Doesn't Seem to Be a Great Success. Bad Omen for CBDCs. Bitcoin remains popular with the masses.
Little success for eCNY
China's central bank has released the latest statistics on its central bank digital currency (CBDC) pilot project.
The cumulative transaction volume was 6.6 trillion yuan ($910 billion) from January 1 to the end of May. That's a seven-fold increase year-on-year. But it's still a drop in the ocean compared to the 5,250,100 billion yuan traded each year in China.
Furthermore, the number of downloaded wallets has fallen from 261 million in 2021 to 120 million in 2023. The figure for 2024 has not yet been communicated according to Ledger Insight.
Over 950 million were made via eCNY in 2023. But again, this is nothing compared to the 542 billion transactions made each year via traditional payment services.
The users are mostly employees of state-owned companies. Receiving part of your salary in CBDC does indeed offer some advantages. The failure of eCNY is due to the fact that the country is already very well equipped in terms of mobile payments thanks to WeChat Pay and Alipay.
It should also be noted that the tests in some provinces of the famous social credit are still on everyone's minds. The Chinese are not fooled. They suspect that the CBDC is a milestone towards the end of cash and the control of the population by the wallet…
mBridge and CBDC
These mixed numbers are bad news for the new international payment network mBridge. Payments from Chinese tourists via eCNY are likely needed to generate large volumes and therefore decent conversion rates.
The founding countries of mBridge are China, Hong Kong, Thailand and the United Arab Emirates. The Bank for International Settlements is overseeing this project, which Saudi Arabia recently joined.
The date of its launch is not known, but it is rumored that the BRICS could refer to it at the Kazan summit to be held in October.
Speaking of BRICS, India's CBDC pilot is also a failure. The volumes are starving with 100,000 transactions per day, 10 times less than last December. The central bank is obliged to offer advantages to attract users.
So far, only Nigeria has officially launched a CBDC at the national level. It is also a fiasco. On the other side of the globe, the United States does not want it and there is also strong reluctance in Europe.
The ECB is, however, working on the “Digital Euro” in secret. It is also an “observer member” of the mBridge project, as is the Fed. Funny when you consider that CBDCs represent a system aimed at circumventing Western sanctions.
Russian Central Bank Governor Elvira Nabiullina said earlier this year that more and more countries are losing trust in the Western SWIFT system.
The Nexus Project
The use of national currencies instead of the dollar has gained momentum since Russia's disconnection from the SWIFT network and the freezing of its foreign exchange reserves (mainly euros).
In this regard, India has recently joined the project Nexusalso rolled out under the BRI. The system aims to speed up international retail payments. It brings together four other ASEAN member countries. India's UPI system will be combined with the national payment systems of Malaysia, the Philippines, Singapore and Thailand.
The Nexus project could help address some of India's trade deficit with Russia, as almost all ASEAN states participating in the Nexus project have favourable relations with Moscow.
The Russian governor, however, seems to prefer the CBDC system. Elvira Nabiullina said she wants to promote digital assets to circumvent sanctions:
“New financial technologies create opportunities for systems that did not exist before. That is why we have softened our position on the use of cryptocurrencies in international payments by allowing the use of digital assets in payments.”
This is a reference to CBDCs, but the door is also open for bitcoin, which seems to enjoy relative goodwill in Russia.
BRICS Bridge vs Bitcoin
The Chairwoman of the Federation Council of Russia Valentina Matvienko showed itself to be ambitious during the plenary session of the 10th BRICS Parliamentary Forum:
“From 2021 to 2023, the share of the ruble in Russian export payments almost tripled to 39%. Overall, our country has increased at 75% the use of national currencies in payments with friendly countries. We will further increase the use of national currencies in payments for our international trade and increase the efficiency of these transactions”she said.
She recalled that, in accordance with the decisions of last year's summit in South Africa, the BRICS are working on creating a payment system. A system immune to political pressure, abuse and external sanctions as with the SWIFT network.
The result of this work could be the creation of a multilateral digital payment platform, the BRICS Bridge:
“This network will help bring the financial markets of the BRICS member countries closer together and increase trade. We could use the CBDCs of the member countries. In addition, this digital settlement and payment platform will be decentralized and none of the participants will be able to limit the actions of the others.”
If the initiative proposed by Russia is approved, the BRICS countries “will have to coordinate legislative work on the circulation of national digital currencies and their use in cross-border payments.”
So many gas factories while bitcoin stretches out its arms…
There is certainly the issue of payment networks, but let's not forget the issue of the international reserve currency. For example, the Indian rupee does not have the attributes of a reserve currency. Even the Russians are reluctant to accept it, that's saying something.
Bitcoin is that truly censorship-proof store of value that the world desperately needs. It is both a strong currency and a competitive payment system thanks to the Lightning Network.
As BlackRock CEO said on Monday, “Bitcoin is a hedge against the devaluation of national currencies. It is digital gold.”
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