Alipay and WeChat Pay the two dominant players in China’s online payments marketplace are all set to see tough competition from the country’s very own central bank digital currency (CBDC) aka Digital Yuan. On Thursday, March 25, speaking during a panel discussion organized by the Bank of International Settlements (BIS), Mu Changchun, director of the People’s Bank of China’s digital currency research institute, briefed about the CBDC developments.
Interestingly, Mu said that one of the key reasons behind the PBoC developing Digital Yuan is providing a foundational back-up to WeChat Pay and Alipay. The two private players currently have a lion’s share dominating 98% of China’s mobile payments market. Explaining further Mu said:
“If there is something bad happens to them, financially or technically, that could bring negative impact on the financial system’s stability in China. To provide a backup or redundancy for the retail payment system, the central bank has to step up” while offer its own digital payments services.
Interestingly, the Chinese central bank has said that the Digital Yuan will co-exist with the two payments giant – WeChat Pay and Alipay. Besides, it will also co-exist with paper notes and other mobile payments platform. Over the last few months, China has been testing its Digital Yuan in some parts of its country. The Asian Economic giant is also planning for a complete rollout by Winter Olympic 2022.
China Proposes Global Rules for CBDCs
The race for CBDCs is catching up as major economies across the world are working on it. Earlier this week, the Federal Reserve Chairman Jerome Powell said that the U.S. is also working on its CBDC plans. However, it not going to rush through it and will do its due diligence while ensuring financial stability.
On Thursday, China has proposed introducing global rules for central bank digital currency (CBDC). Mu said that the PBoC has already shared the proposal with other central banks and monetary authorities. He added:
“Interoperability should be enabled between CBDC (central bank digital currency) systems of different jurisdictions and exchange. Information flow and fund flows should be synchronised so as to facilitate regulators to monitor the transactions for compliance.”
Mu further stated that the key global rule should be to ensure a “fair supply of digital currencies” by global central banks. A “digital currency supplied by one central bank should not impede another central bank’s ability to carry out its mandate for monetary and financial stability,” he said.
Finally, he also acknowledged that one of the major reasons behind creating the Digitial Yuan is protecting China’s monetary sovereignty against the popularity of public cryptocurrencies like Bitcoin.
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