The Chinese government hopes to use the digital Yuan to lessen the current supremacy of digital payments held by tech giants Alibaba and Tencent.
According to a report in the Financial Times, the People’s Bank of China’s digital currency electronic payment (DCEP) system could help create a more level playing field in the country’s electronic payments sector.
Alibaba and Tencent are miles ahead of any other financial service provider in the digital payments space. Through their respective payment services, Alipay and WeChat Pay, the tech firms account for nearly 90 percent of all mobile payment transactions made in the country.
The publication’s sources also indicate that the DCEP will enable various banking services in the country to gain better opportunities to service electronic transactions.
Last week the leaders of Facebook, Google, Amazon and Apple were grilled by the United States Congress over various concerns around their monopolistic practices and it seems that Alibaba and Tencent are facing similar scrutiny in China.
China’s State Council’s anti-trust committee is considering launching a probe into both companies for abusing their power to repress any business competition in their respective spheres of influence. This probe is being considered after a recommendation from the People’s Bank of China.
Nevertheless it seems that China’s central bank wants to wrestle back some control of mobile payments in the country and its DCEP system will work with various banks to carry this out.
Reports dating back to August 2019 touted the importance of a Chinese central bank digital currency giving local banks a chance to muscle-in on the digital payments sector which is so heavily dominated by Alipay and WeChat Pay. Banks would play an important role in allowing people to convert physical Yuan into the Central Bank’s digital Yuan.
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Yongli Wang, former vice president of Bank of China, reportedly touted the future role that the Chinese DCEP will play in servicing the digital payments space.
Wang, who is now a director of the Haixia Blockchain Research Institute, believes that a Chinese central bank digital currency could reshape the financial system in the country.
This could be done through the creation of basic accounts on the DCEP platform by businesses and individuals, which would give the Chinese central bank the ability to have a bird’s eye view of the digital economy.
Wang believes that the DCEP will improve the efficacy of monetary policy while preventing excessive issuance of physical fiat currency.
As the People’s Bank of China draws nearer to the launch of its central bank digital currency, there were various reports that suggested that the likes of Alipay and WeChat Pay would be among initial service providers giving users access to the digital Yuan.
However in recent months, both service providers were not listed among the companies that were actively testing the national cryptocurrency and its systems.
These latest rumblings from China cast aspersions on those initial reports and it will be interesting to see what access these tech giants have when the digital Yuan is eventually launched.