Significant advances expected for e-CNY payments

Cross-border payments in the digital yuan, or e-CNY, are likely to make breakthroughs soon as good progress has been made in developing two e-CNY cross-border payment solutions, perhaps the first of their kind, according to executives close to the matter.

Thunes, a Singapore-based cross-border payments company, and China Construction Bank, one of China's biggest commercial banks, announced on Thursday that they are making progress in jointly developing two cross-border payment solutions using the digital yuan, which will help enhance settlement efficiency.

One is Shu Duo Hui, which is designed to help small and medium-sized enterprises in China get paid when they sell to markets overseas. The other is Shu Shan Da, a solution designed to simplify cross-border remittances, helping people in China send tuition fees and other funds overseas.

CCB said the solutions will become available to customers in due course after obtaining relevant regulatory approvals and application trials. Sources close to the matter said the solutions may be in the final stage of regulatory review, with anti-money laundering part of the compliance focus.

The announcement was made at the 2023 China (Beijing) Digital Finance Forum, held in Beijing on Thursday.

Peter De Caluwe, CEO of Thunes, told China Daily on the sidelines of the forum that the two products, once available to customers, are likely to represent the first mass commercial use of e-CNY cross-border payments and potentially the world's first for any central bank digital currency, or CBDC.

He said the two solutions will enable Chinese businesses and individuals to have easier and faster cross-border payment experience partly because they do not need to convert the renminbi into foreign currencies by themselves, and vice versa in cross-border payments, but simply transact using e-CNY.

For instance, with the Shu Shan Da service, Thunes will collect digital yuan in a Chinese parent's e-CNY wallet and transfer it into foreign currencies to pay for his or her child's overseas tuition fees, with the whole process completed in seconds.

Using the Shu Duo Hui solution, e-commerce sellers in China can sell goods on overseas e-commerce websites, and Thunes will collect foreign currency on behalf of the business, convert it into e-CNY, and move the digital yuan to the firms' e-CNY wallet, he said.

"The new solutions should help expedite the internationalization of the Chinese currency by improving connectivity of the e-CNY with the rest of the world and facilitating China's international trade," he added.

While Thunes and CCB are exploring e-CNY cross-border payments using Thunes' global payment network, other systems of cross-border CBDC payments are also being developed.

The People's Bank of China has been working with other central banks and the Bank for International Settlements to explore a network that can enable instant exchange of multiple CBDCs, namely mBridge. The project completed a transaction experiment totaling over $22 million last year and may launch a minimum viable product next year.

Lu Lei, deputy head of the State Administration of Foreign Exchange, said at the forum that the mBridge project has made "good breakthroughs and progress" while recognizing that "secure, convenient and inclusive" cross-border payments can be made via CBDCs.

Nevertheless, Lu said use of CBDCs in cross-border payments will also increase the difficulty of managing cross-border capital flows as money won't necessarily have to flow across borders through the banking system, which could blur the boundaries of cross-border capital flows.