[Correspondent Diary] The Limitations of China's Digital Yuan

A Structure That Can Only Be Used in China
Convenience and Safety, Capital Market Management Over Renminbi Internationalization

[Asia Economy Beijing=Special Correspondent Jo Young-shin] "When COVID-19 ends, many foreigners (tourists) will visit China, and many Chinese will go abroad. At that time, confusion (inconvenience) may occur due to China's electronic payment system. We (China) are considering this issue." This is what a Chinese official recently told reporters. It is interpreted as a remark with the digital yuan in mind.

[Image source=Reuters Yonhap News]

China's introduction of the digital yuan has practically entered the final countdown. It appears that the basic preparations have been completed to the extent that there are forecasts that the digital yuan will be introduced around the '2022 Beijing Winter Olympics.'

In fact, the form and limits of the digital yuan wallet have been specifically revealed. According to Xinhua News Agency, the forms of digital wallets carrying the digital yuan include smartphone-based apps, smart cards (credit card type), and wearable devices. Of course, smartphones are expected to be the most widely used.

Guidelines on usage limits have also been specifically announced. The balance limit (when authenticated by smartphone) is 10,000 yuan (approximately 1.74 million KRW), and the single payment limit and daily usage limit are set at 2,000 yuan (340,000 KRW) and 5,000 yuan (870,000 KRW), respectively. After additional real-name verification processes such as registering personal ID and account information, the digital wallet limit is raised to 500,000 yuan (87 million KRW). Also, the single payment limit and daily usage limit are expanded to 50,000 yuan (8.7 million KRW) and 100,000 yuan (17 million KRW), respectively.

Xinhua News Agency emphasized that privacy protection features are also equipped. It explained that a function called Ziqianbao (sub-wallet) was added inside the main digital wallet, allowing users to open multiple Ziqianbao wallets under the main digital wallet. Xinhua reported that transaction information of Ziqianbao is not collected.

China could introduce digital currency as soon as tomorrow, but the problem is that only Chinese people can use it. To use the digital yuan in China, one must open an account at a Chinese bank and link the account to the digital wallet. This is a complicated and bothersome procedure for foreigners who are not long-term residents. The same applies to electronic payment systems like WeChat Pay or Alipay. One must open an account at a Chinese bank and link it to the electronic payment system.

The way to avoid complicated and cumbersome procedures is to link personal accounts between overseas banks and Chinese banks, but this is practically impossible. Since there is a high possibility of being used for crimes such as money laundering and overseas capital outflow, financial authorities of each country will not tolerate this. Even if digital currencies are introduced worldwide, usage and transactions will inevitably operate in the existing (analog) way.

Ultimately, the interpretation that China is rushing to introduce digital currency not for transaction convenience, safety, or internationalization of the yuan but rather focusing on financial market management is gaining weight. A financial sector official in Beijing said, "Even if foreign central banks first propose linking accounts with China to activate transactions, Chinese financial authorities will refuse," adding, "The primary purpose of China's digital yuan introduction lies in financial market control."

This content was produced with the assistance of AI translation services.