After five years of rumors and research, the People’s Bank of China (PBoC) has confirmed that their national cryptocurrency is ready at the China Finance 40 Forum.
Deputy director of the bank Mu Changchun spoke on the technology, saying that it may not be made in a traditional cryptocurrency way, with the PBoC veering away from adopting blockchain. This is because blockchain may not be compatible with retailers and concurrent in a nation as large as China. Changchun said he would keep an open mind on the technical aspects.
Unlike other cryptos, the currency will be centralized under the PBoC and then distributed to commercial banks across China. The currency will no doubt attempt to be a stable coin, with the added benefit of giving traceability and transparency in transactions.
There has been no official date for the currency’s release, yet that has not stopped analysis and talk of the impact it could have in China and abroad.
The PBoC Cryptocurrency may Cannabalise Wechat and Alipay?
Wechat and Alipay have long been stalwarts in the economy and the most used methods of payment, accounting for 9 out of 10 transactions. When using cash in China, you are often looked at suspiciously, so regimented is the usage of the two mobile payment methods.
Cindy Wang, an analyst at DBS Group Research, believes that the advent of a national cryptocurrency could cause serious problems for Wechat and Alipay. The PBoC’s move to a digital currency will bring the economic reigns back into the control of the banks and away from third parties.
Speaking to South China Morning Post, Wang said, “the PBOC hopes to divert some of the deposits back to the banking system.” This will then allow them to be real competitors to Tencent (parent company of Wechat) and Alipay.
Hui Kai-lung, a professor at the Hong Kong University of Science and Technology’s department of information systems agreed with this sentiment, stating:
“Commercial banks have been disadvantaged in competing for mobile payment businesses because the big data related with the end-users payment and online behavior has been captured by Alipay and WeChat Pay. But with their new role under the PBOC’s digital currency initiative, I expect banks to form their own platform and network on big data,”
It does appear to many that this crypto from the PBoC will look to target the retail market. The Director of the Financial Research Center of Beijing University said in a transcripted speech on Jinse: “We can probably understand that the digital currency is mainly aimed at individuals, mainly for retail.” Further implicating Wechat and Alipay as this is their main area of usage.
China’s National Cryptocurrency to set a new precedent
Something which is a stand out feature of the project is the amount of control that the PBoC will have. The centralized feature allows for more stringent controls. For Forbes contributor, Enrique Davis, this will add to prohibiting money laundering, criminal activities and other nefarious acts that happen inside an economy. As Davis puts it, China’s PBoC cryptocurrency is “offering solutions for its challenges.”
The move will also put China in the driving seat for finance in the future. When the Libra project white paper was released, many Chinese analysts were worried about where this would leave the People’s Republic in the global hegemony. However, this PBoC move has changed the whole perception. Jeremy Allure, head of Circle pointed out to AMB Crypto that “not a single person in the United States government or in the federal reserve” has thought of this idea and now China is the only superpower leading the way in tech innovation.
Allure continued, saying he felt China’s decision puts them ‘one step ahead”. If it runs over digital infrastructure, Chinese firms could work alongside counterparties globally on agreements and trades. Not only that but it could help with direct settlement paths, without the need of the western banking system.
China’s move may also make virtual cash a lot more respectable, especially after the failings of Venezuela’s Petro. The creation of a national cryptocurrency from the second-largest economy in the world will no doubt add weight to the respect and standing of digital currencies. For Davis, this move from China, who has always been skeptical towards the digital economy illustrates that: “The cryptocurrency has come of age.”
Whether this is a big move that promotes radical change remains to be seen, what is certain though is that the world will be watching intently as China enters the modern age.