The Ongoing Evolution of Payment Instruments in China: A Case Study in Financial Innovation, and on the Role of the Central Bank

Abstract

Payment methods and habits are evolving over time, as a result of technological innovation and commercial development. China, where paper money was invented more than 1000 years ago, is no exception to this. This chapter looks into the ongoing evolution of payment instruments in mainland China, and the interest and role of the central bank. It finds that, in recent years, the use of non-cash payment instruments has been growing rapidly, driven by commercial, technological and regulatory developments, as well as by changing customer needs. In this dynamic environment, the People’s Bank of China (PBoC) ensures an orderly development and the safety and efficiency of payment arrangements via regulations, the oversight of payment systems, instruments and service providers, as well as by providing payment infrastructure itself, such as the Internet Banking Payment System. With it, the PBoC responds not only to the rapid growth of Internet and mobile payments, but also to the increasing demand for instant payments, which is a global trend. The next technological shift might be a gradual one from electronic to digital money. In this area, the PBoC is also active, by overseeing and regulating Bitcoin and assessing digital currencies in general, including the potential issuance of a digital Yuan.