China Makes First Zero Fee e-CNY Futures Market Cross-Bank Payment

The digital yuan (e-CNY) has been used for the first time to complete a transaction in the futures market. 

Dalian Commodity Exchange, a Chinese futures exchange based in Dalian in the Liaoning province,            used the digital currency to pay storage fees to Dalian Liangyun Group Storage and Transportation Company for a warehouse delivery. 

Aside from being one of the cities where the digital currency has been piloted, it was in Dalian that China’s first e-CNY B2B payment settlement was completed between two fuel trading companies on a shipping industry’s digital platform.

Unlike the traditional form of bank remittance payment, the e-CNY storage fees payment comes with free handling fees, real-time query of collection progress, and business processing not subject to large payment system opening and stopping period constraints, says a manager at the Dalian Liangyun storage company, Jiang Bin, in a China Securities Journal report.

The Journal also reports that Dalian has been focused on promoting the deep integration of the digital economy and futures market since the pilot and is now taking the lead in forming a e-CNY innovation application model in the field of futures.

It is the first application of related business in the futures market through zero fees, real-time cross-bank payment, for futures exchanges and market participants, the report adds. 

Thirty-five commercial banks, an increase from just state-owned banks, recently embedded e-CNY apps and app-related features to join the interface as they participate in the e-CNY testing phase. 

The move, which indicates that institutions involved in the e-CNY testing is expanding, points to the possibilities for the development of the digital currency which experts believe is necessary in improving the efficiency and convenience of the domestic retail payment system. 

Pan Helin, executive director of the Institute of Digital Economics at Zhongnan University of Economics and Law, thinks that the popularization through the institutions’ active participation would help to reduce the risk of public perception of the e-CNY bias. 

On a global scale, the wider implications of having the e-CNY rolled out on a large scale – after rounds of pilots – is still making the news though. 

A recent report by the Investors Service of American credit rating agency, Moody’s, says the e-CNY could shake up China’s e-payments industry if adopted widely by changing the competitive landscape in the e-payment industry.

“Widespread adoption of the e-CNY would help strengthen banks’ roles in the e-payment system by increasing their data collection and user bases, and would allow them to benefit from use of public infrastructure for payment,” Lillian Li, a Vice President and Senior Credit Officer at the agency, says.

The impact on the digital payments and e-finance services industries is expected to be limited at first but bigger in the long term as competition increases and there is a wider CBDC adoption and banks’ role in e-payments heightened.

For Yaya Fanusie, an Adjunct Senior Fellow at the Center for a New American Security (CNAS) who has been studying the e-CNY, the digital yuan may not be a threat to the U.S. dollar in the short term but could hurt the dollar’s status in the world financial system in the long term. 

“I think they’ll try to make arrangements with other countries where they enable CBDC-to-CBDC exchange,” Fanusie said in his contribution to Chainalysis’ Cryptocurrency and China report. Think of it as an atomic swap of CBDCs. This isn’t a risk for 2022, but probably more for 2032 and beyond.”