Chinese province floats new use for digital yuan: paying long-delayed debts

China is mulling the application of its digital yuan – the central bank-backed currency also known as the e-CNY – to tackle persistent payment defaults, a move that would broaden the asset’s scope beyond the set of use cases explored by Beijing since the currency’s launch in 2019.

Authorities in the central province of Hunan touched upon the subject when detailing plans to expand the digital currency’s application scenarios and scale, according to a document published last month.

Hunan will “explore using the digital yuan to clear chain debts” through a model where funds can reach the end of the payment chain directly, the document said.

While details at the moment are sparse, analysts suggested the digital currency could be used to ensure the often opaque relationships between payers and payees are more traceable and transparent.

“This could potentially help enhance real-time visibility and control over transactions within the economy,” said Tan Junyu, an economist at global trade credit insurer Coface.

Chain debts, or triangular debts – a series of cascading payment defaults spreading financial strain across interdependent sectors of the economy – are particularly pronounced in fields like the automotive industry, Tan said, as carmakers exert strong bargaining power over their suppliers.

South China Morning Post