China’s plans for the launch of central bank digital currency (CBDC) have created concerns that the position of digital payments giants Alipay and Tencent’s WeChat Pay could be severely undermined by the new technology.
The People’s Bank of China (PBOC) recently revealed that it had commenced “internal testing” of its CBDC – also referred to as the Digital Currency/Electronic Payment system (DC/EP), across a slew of Chinese cities including Suzhou, Shenzhen, Chengdu and Xiong’an.
A senior official from PBOC first announced in September 2019 that the launch of a Chinese CBDC was all but “imminent.”
Given the very nature of a statutory digital currency, however, many observers have raised the possibility that a CBDC launch could sideline China’s established cashless payments platforms – Ant Financial’s Alipay and Tencent’s WeChat Pay.
Dong Ximiao (董希淼) chief researcher at XWBank and chief researcher at the Zhongguancun Internet Finance Institute (ZIFI) said to 21st Century Business Herald that compared to non-bank payments methods the CBDC will be safer and have a broader scope.
CBDC will not need to be tied to a bank account, unlike mobile payments, while other advantages of a statutory digital currency will include:
- Statutory nature of sovereign credit, meaning vendors cannot refuse payments
- The convenience afforded by dual offline payments, which means payments do not require an Internet connection
- Traceability of money flows.
Yang Tao (杨涛), vice-chair of the National Institution for Finance & Development (NIFD) and deputy-assistant head of the Financial Research Institute of the China Academy of Social Sciences (CASS), believes, however, that the Chinese CBDC will not have a major impact on third-party payments providers in China.
Yang highlights four reasons why he does not expect the CBDC/ DC/EP system to undermine third party payments operations:
- Digital currency is a supplement to the retail payments system, providing one of multiple options,
- The scale of digital currency issuance will be comparatively limited,
- Digital currency technology, efficiency and procedures all require ongoing optimisation,
- Users will need to gradually adapt their payments habits to digital currency application scenarios.