Much has been made of the forthcoming digital yuan – China’s central bank digital currency – and its potential threat to the United States dollar, but a China watcher is saying that the token will first need to displace the likes of Alipay and WeChat Pay at the top of the domestic e-pay tree.
Alipay is the e-pay arm of the e-commerce giant Alibaba, while the tech and entertainment heavyweight Tencent operates the WeChat ecosystem and its WeChat Pay arm. Together, the two have cornered 15% of the entire Chinese payments market and 95% of the digital payments sector.
The digital CNY, the brainchild of the central People’s Bank of China (PBoC), will look to challenge that. And speaking to CNBC, Martin Chorzempa of the Peterson Institute for International Economics, claimed,
“I think [the PBoC has] to beat Alipay and WeChat Pay in China before, I think, that they can make a dent in the USD. It’s going to be essentially the central bank versus the big tech companies and that’s going to be quite interesting to watch.”
The expert added that central banks all over the world are now “concerned” that a private tech company “might take over their currency,” cornering the payments market as Alipay and WeChat have done in China.
However, it may be worth pointing out that the PBoC is not exactly at loggerheads with Alipay or WeChat Pay per se. The e-pay heavyweights are both required to hold deposits with the central bank, and some have previously suggested that they may have been working on interoperability solutions with the PBoC and its token behind the scenes.
Furthermore, the PBoC and affiliate banks have already indicated that they are prepared to explore avenues that even e-pay providers have yet to explore – with the development of a smartphone-free, offline “hard wallet” solution that is currently in testing in Shanghai.
There are also signs that Alibaba’s outspoken supremo Jack Ma may still settle his differences with the PBoC – and that the government may not be completely at loggerheads with the tech titans.
Regardless, Chorzempa agreed that the digital CNY was “really unprecedented among the major economies,” adding that China was “by far the most advanced of any in digital currency, and it’s exciting to watch.”
Meanwhile, the Financial Times reported yesterday that the planned ‘e-yuan’ could boost Beijing’s surveillance state and create competition for private fintech groups.
“The wide use of the digital renminbi will affect the market position and profit model of third-party payment platforms like Alipay and WeChat pay,” Wang Yongli, a former vice-president of Bank of China, one of China’s largest state-owned banks, was quoted as saying in the report.
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