Ant and Tencent, which together occupy over 90% of China’s mobile-payment market, are currently under more regulatory pressure
Amid a global race by central banks to master the concept of digital currencies — a disruptive technology once they looked down with regulatory scepticism — the People’s Bank of China looks set to be the first to issue a digital version of its currency, the yuan.
According to patents registered by the PBoC and pilot trials, the digital yuan could work like this: Consumers and businesses would download a so-called e-wallet onto their mobile phone and fill it with money from their accounts at a commercial bank, similar to going to an ATM.
They can then use that money — called e-CNY — like cash to make and receive payments directly with anyone else who also has an e-wallet.
No doubt, China is increasingly a cashless society.
Even street-food sellers in small towns prefer to be paid via a mobile-payment apps like Ant Group Co’s Alipay and Tencent Holdings’ WeChat Pay rather than cash.
More than 72tn yuan ($11tn) of transactions in China were processed via these payment systems in the last quarter of 2020, according to research firm Analysys.
The latest central bank figures show 85% of adults used electronic modes of payment in 2019.
The PBoC gave the green light in 2019 for e-CNY to be tested in four cities as well as the 2022 Winter Olympics venues in Beijing and Zhangjiakou. The list grew to 11 cities and provinces in 2020 including Shanghai, and PBoC deputy governor Li Bo said in April this year that more trials could be rolled out.
The central bank started testing cross-border use with the Hong Kong Monetary Authority in 2021, and has done additional testing with Thailand, the United Arab Emirates and Hong Kong in something called the “Multiple Central Bank Digital Currency (m-CBDC) Bridge Project.”
So far the trials have had a muted reception as customers complain that they struggle to find stores that accept the e-CNY, and that the e-wallet doesn’t offer as wide a range of services as the commercial payment apps do.
Alipay and WeChat Pay are deeply embedded in a whole world of social media, e-commerce, ride-hailing, bill-paying, investments and other functions.
But Ant and Tencent, which together occupy over 90% of the mobile-payment market, are under more regulatory pressure these days, from anti-trust probes to control over data.
In public, the PBoC says e-CNY won’t compete with AliPay or WeChat Pay. In private, state banks marketing the digital currency for the central bank describe Beijing’s intention to undercut the duo’s dominance, according to a Reuters report.
The e-CNY must be contrasted with Bitcoin and such cryptocurrencies, which mask personal data from central actors, transact in an obscure domain with no legitimate regulatory oversight.
The PBoC will, of course, back the digital yuan, making it the opposite of the decentralised.
Central bank digital currencies (CBDCs) are electronic versions of the legal tender, available either directly to consumers or via banks.
Behind China’s rush to have the first-mover advantage in CBDCs is the desire to manage technological change on its own terms. As one PBoC official puts it, currency isn’t only an economic issue, it’s also about sovereignty.
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