With the growing interest and adoption of cryptocurrencies, about 80% of central banks worldwide are looking to create their own cryptocurrency. The People’s Bank of China (PBoC) is at the forefront of them all. China’s central bank has been working on its DCEP for about six years now.
In 2018, China’s Central Bank former governor Zhou Xiaochua pointed out that it will take nothing less than a decade for its digital yuan to be fully functional. However, several events have propelled this timeline forward. One of which was the proposed launch of Facebook’s highly-controversial stablecoin Libra.
Covid-19 Has Helped Speed up Development
The current onslaught of the novel coronavirus and tensions resulting from US-China trade hostility has also placed a level of urgency on its DCEP launch. Though sandbox testing has been ongoing since 2017, PBoC finally held trials in April.
The testing involved four different cities in China namely: Shenzhen, Xiong’an, Chengdu, and Suzhou. While trials were ongoing, the Agricultural Bank of China also launched an e-wallet to serve as storage for the digital yuan.
How Will the DCEP Affect WeChat Pay and Alipay?
The China digital currency space is completely saturated by Alibaba’s Alipay and Tencent Holdings’ WeChat Pay. Amounting to a whopping $49 trillion market, over 500 times bigger than electronic payments in the US. The Duo (Alipay and WeChat Pay) have single-handedly transformed China into a nearly-cashless economy.
The proposed launch of China’s digital yuan could, however, could spell doom for the two fintech giants. Despite increased pressure on launching the DCEP, China’s PBOC Governor Yi Gang insists that testing is expected to continue until 2022. However, there is no finality to this timeline as the country is yet to officially confirm any detail of the DCEP launch.
Although Alipay and WeChat Pay served as the foundation of electronic payment in China, they might have to compete with the country’s digital yuan eventually.
Can Alipay and WeChat Pay coexist with China’s DCEP?
There are several pointers to the fact that China’s DCEP has no plans to usurp both fintech platforms. However, it is important to note that the digital yuan is designed to also provide the same function as both Alipay and WeChat Pay. With it, citizens will be able to make day-to-day purchases, subsequently replacing banknotes and coins in the future.
China’s DCEP might also negatively affect Ant Group’s proposed IPO launch expected to go live soon. Ant Group is looking to raise $30billion in both Hong Kong and Shanghai provinces.
It is still unclear if China’s DCEP is out to obliterate both Alipay and WeChat Pay or if it is possible for all three platforms to co-exist.
Speaking on this issue, Ant Group in its IPO prospectus pointed out that it was still in the dark on the “impact of the DCEP on consumers’ payment behavior and the payment industry.” Adding that,
Many schools of thought, however, see the three systems as less of a competition. Analysts are positive that China’s DCEP will likely coexist with both Alipay and WeChat Pay.
There’s huge speculation that PBoC will be working with already established financial institutions instead of trying to displace them. This will help forge a clear path as well as prevent both technological and regulatory mishaps. Furthermore, to prevent a complete overthrow of already existing financial structures, the DCEP will be directed towards small, retail transactions.
According to Huang of Mizuho Corporate Bank, the PBoC has no plan to compete with commercial banks or other third-party payment firms. Both Ant and Tencent, parent companies of Alipay and WeChat Pay are also actively involved in launching the DCEP project. Thereby, indicating there are no plans to kill off both platforms.