With China’s central bank digital currency (CBDC) project still in progress, there are speculations that the digital yuan could be used to water down the dominance enjoyed by major players like Alibaba and Tencent.
China’s CBDC Looking to Even Out Competition
According to a report by the Financial Times, some sources revealed that the People’s Bank of China (PBoC) reportedly plans to use its CBDC project, the digital currency electronic payment System (DCEP), to lessen the dominance of the digital payments market shares held by tech giants Tencent and Alibaba.
The report noted that Alibaba’s Alipay controlled close to 56 percent of China’s mobile payments network in Q1 2020. Also, a source stated that the former PBoC governor gave Alipay and Tencent freedom, despite protests from the CBRC (China Banking Regulatory Commission) and commercial banks.
Consequently, the central bank’s actions caused the tech giants to expand to the extent that they became impossible to control. However, the PBoC wants to curb the dominance of the companies’ online payment platforms — Alipay and WeChat Pay — and make the competition fair for commercial banks.
A statement from a top official of the Hong Kong Monetary Authority (HKMA) reads,
“It is about the role of a digital currency for domestic retail use. They want a more level playing field for the banks. Retail payments are so dominated by Alibaba and Tencent while banks are less active in electronic payments.”
DCEP Could See Cross-Border Payment Use Case
The central bank showing no signs of slowing down with its CBDC project. According to a previous report by BTCManager, one of the PBoC’s “Big Four” banks, the Agricultural Bank of China (ABC) introduced a mobile application to trial the DCEP.
In April 2020, workers in Xiangcheng District of Suzhou were to receive 50 percent of their transportation subsidies in DCEP. There have also been reports of companies testing China’s digital yuan. They include Starbucks, McDonald’s, and Subway; Chinese e-commerce giant Meituan Dianping, and Chinese major transportation company Didi Chuxing.
With China forging ahead with its CBDC project, the digital yuan when launched could be used for cross-border payment. This could be possible as the PBoC can leverage the $1T “Belt and Road” initiative for the DCEP, while also debt servicing for countries in Africa.
Russia, on the other hand, recently passed a law that would effectively ban the use of cryptocurrency as a payment means in 2021. The Russian government also prohibited anonymous deposits from online wallets.