China has been experimenting with the digital form of its government-backed yuan since 2014 and launched several pilot projects in major cities in 2019 to inject the digital currency into its people. Recently, in May 2022, a new prepaid digital yuan or e-CNY platform was witnessed to be widely adopted in nearly 200 firms in Shenzhen, Guangdong province. Moreover, the country has expanded the prepaid e-CNY applications to many industries, including education and training institutions, beauty and hair salons, and many more.
Specifically, with the onset of the pandemic, prepaid card-based consumption became a popular model in many industries globally. However, if the services are terminated due to some reasons, refunds and compensation are still very difficult through conventional methods. On the other hand, digital currency helps consumers to protect their legal rights and interests, thereby minimizing the risk in prepaid capital. Here the fund will be supervised through smart contracts and remains unalterable. Therefore, the country is pushing for these new methods of payment to be widely adopted by its citizen.
With the help of this channel which enables the consumers' payments to be frozen in their digital wallets, it is injected into many industries through pilot applications. For instance, in the education industry, the participating training schools can receive a payment every time they give a lesson. As per the smart contract, this payment will automatically be made each time the service is provided. Moreover, the consumers can apply for a refund if the service providers fail to continue the service due to their reasons.
The conventional prepaid card used by the consumers creates irregularities and sometimes even can take advantage of as an illegal fundraising tool, leading to various financial and social risks. Thus, the higher usage of prepaid digital yuan will help to curtail such disputes and improve market supervision efficiency in the economy.
The year 2022 started with a major leap in China with the digital yuan app officially launched for iOS and Android devices on Chinese app stores. Post the launch of the app, the Tencent-owned payment platform WeChat announced to allow its users to select digital yuan as a payment option to pay for services. WeChat, which has around 1.2 billion users and around 750 million active users, the new development, will provide exposure to the e-CNY through the platform. Notably, this prepaid digital yuan is likely to provide stiff competition to other online payment platforms – including WeChat itself.
The People's Bank of China, the country's central bank, stated that more than 258 million digital yuan wallets had been set up by the citizens by the end of 2021. Importantly, the total transaction volume was about 87.57 billion yuan (US$13.11 billion) during that time.
Therefore, the above data reveals that the technological improvement of the digital yuan, considering the distinguished usage of 'smart contract' in the prepaid card model, is likely to see significant adoption by consumers as well as by people of the country. Additionally, the government is also working on the prepaid platform to make capital utilization more flexible and payment disputes easier to deal with.
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