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Chinese Workers Convert Digital Yuan to Cash Due to Concerns Over Utility and Privacy

Conversion of digital Yuan to physical cash

Concerns over usability and privacy drive Chinese workers to convert their digital yuan payments into physical cash, despite the government's push for CBDC adoption.

Key takeaways:

  • Many Chinese workers paid in the digital yuan are converting it into physical cash due to the lack of utility and interest in holding the digital currency.
  • Privacy concerns and limited use cases for the digital yuan are significant barriers to its broader acceptance among Chinese citizens.
  • Despite being a virtually cashless society, the transition to a fully digital currency like the digital yuan is met with resistance from the public.

China's efforts to roll out its digital currency have encountered significant challenges, as some state employees, wary of the digital yuan, are converting their digital wages into physical cash as soon as they receive it. A recent report from the South China Morning Post on May 13 highlighted this trend among Chinese state workers who are participants in the country’s Central Bank Digital Currency (CBDC) pilot program.

According to the report, cities like Suzhou have started paying state employees in the digital yuan, known as "e-CNY." However, the adoption has been tepid, with many employees converting their digital currency to cash immediately after receiving it. Sammy Lin, an account manager at a state bank in Suzhou, noted:

"I prefer not to keep the money in the e-CNY app, because there’s no interest if I leave it there, and there are not so many places, online or offline, where I can use the e-yuan."

The sentiment was echoed by a civil servant, Andrew Wang, who mentioned that while only a small part of his salary is in digital yuan, his wife, who receives her entire salary in the CBDC, converts it all to regular cash due to its limited utility. 

Wang added:

"She can’t deposit the money or buy financial products with the e-CNY wallet," 

Challenges in the adoption of digital Yuan

Despite China being nearly cashless for a decade, the digital yuan faces hurdles in gaining widespread acceptance. Concerns about surveillance and the currency's limited use cases contribute to the public's hesitation. As of mid-2023, transactions worth over $250 billion had been processed using the digital yuan, as per Yi Gang, the former governor of the People’s Bank of China.

Ye Dongyan, a researcher from Beijing’s Cheung Kong Graduate School of Business, highlighted the need for a balanced approach to privacy and security to foster wider acceptance of the digital yuan. He pointed out the unique challenges of digital currency privacy, stating: 

"Paper currency is used anonymously, but the digital yuan is different. The boundaries between information tracking and information security protection need more deliberation."

The privacy concerns were also acknowledged by Yi Gang, who emphasized at a forum in Beijing that the digital yuan could "fully protect privacy" through "controllable anonymity," allowing for no tracking of small payments but some surveillance of larger transactions.

To boost the adoption of the digital yuan, several jurisdictions in China have been implementing initiatives, including distributing over $26.5 million in subsidies and consumption coupons. However, the journey towards a fully digital currency continues to face significant public resistance and skepticism.