While nothing new, digital currencies have gained significant traction over the last few years. Since 2014, the Chinese government has been working with state banks to create a digital currency.
This new digital Yuan will form an integral part of the governments’ effort to assert its dominance globally and rival the US Dollar as the reserve currency. Indeed, for this project to be successful, the government will need to have complete control over the economy and the private sector – including big tech companies.
Big tech cooperation may not be as voluntary as it first appears
The government has enlisted the help of JD.com and many other companies in the countries booming tech sector. JD.com, one of the nation’s largest online retailers, has recently announced that it will pay some of its employees using digital currency. Aside from JD.com, ride-hailing app Didi, online to offline service platform Meituan, and video streaming platform Bilibili have all begun to accept the digital Yuan for customer purchases.
It was also reported that both Ant Group and Tencent have been working with the Peoples Bank of China (PBoC) to design, develop, and test the the currency.
At present, Alipay and WeChat Pay control 94% of China’s online payment market and the data that comes with it. A new digital currency will certainly make a dent in this dominant position. According to a Reuters article, in public, the People’s Bank of China (PBoC) says a digital Yuan won’t compete with AliPay or WeChat Pay and serves only as a “backup” or “redundancy”.
However, in private, state banks marketing the digital fiat currency for the central bank describe Beijing’s intent to undercut the duo’s dominance. Transactions made in digital Yuan can be completed directly on the banks’ digital wallet, thus bypassing the need for Alibaba and Tencent’s payment services.
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It’s no coincidence that this coincides with Beijing’s numerous moves to clamp down on Chinese big tech’s anticompetitive behavior which included hefty fines and blocked IPO’s.
Other governments are investigating digital currencies
China isn’t alone in its efforts to create a digital currency. The US Federal Reserve has been working on a Central Bank Digital Currency (CBDC) and it is thought that two digital dollar prototypes will be unveiled as soon as July 2021.
Similarly, the European Central Bank has been conducting its research into the possibility of a digital Euro. It is set to decide this spring whether it will be going forward with a digital currency.
The bank of England has been on the fence and is yet to decide. However, it has created a CBDC Taskforce to coordinate the exploration of a potential UK CBDC.
China aims for first digital currency
China has its sights set on becoming the first digital currency, and it will likely achieve this. The country has a far more mature digital payments uptake when compared to the rest of the world and will face far less regulatory scrutiny in the process. China has also been using its tight control over society and businesses to its advantage to speed up the process of testing.
The US government may struggle to call on its tech sector to speed the project along, especially as Facebook has been busy creating its own digital currency, Diem (previously known as Libra).