The Bank of Communications unveiled its digital RMB trial event at Beijing Happy Valley on Wednesday. Staff members introduced some information about RMB to visitors, and then instructed them to download the digital RMB app, open the digital RMB wallet, and make their first digital RMB purchases at the amusement park.

At the first China International Consumer Products Expo held in May in Haikou, Hainan province, many banks launched trial zones to let visitors experience multiple usage scenarios involving digital RMB.

The Chinese media agency Sohu reported that Xi’an Bank and Hainan Bank are the latest Chinese banks to begin participating in the country’s central bank digital currency (CBDC) trials. News of this development is significant because both are second-tier commercial banks that will not have direct access to the digital yuan.

Given the administrative costs for second-tier banks, it is presently unclear how these commercial banks will be compensated for helping users access the digital yuan. Currently, digital yuan transactions are free so they won’t earn money that way.

China’s digital yuan is a form of legal tender which is issued by China’s central bank. It operates on a two-tier system where the central bank authorizes eight operating institutions – the six largest state-owned banks, WeBank and MyBank – to issue digital yuan.

The reason for this is not all banks have sufficient technical capabilities to interface directly with the central bank, and it reduces the number of banks the central bank has to support. It also might be a matter of scale. Arguably this is a synthetic CBDC as the former central bank governor has stated that the digital yuan is a legal liability of these commercial banks, not the central bank.

Local commercial banks such as Xi’an and Hainan – which represent tier 2.5 as circulation institutions – will need to go via the state operating institutions to access the currency.

Most users will open a digital renminbi wallet through their banks to get hold of the digital renminbi.

Photo: Xihnua