As the world emerges from lockdown, China is already several steps ahead in the roll-out of a Central Bank Digital Currency (CBDC). The Asian giant spearheaded its digital Yuan back in April and is now integrating the PBoC backed asset into China's existing payment networks.
This Chinese digital currency has been dubbed ‘DCEP' and speculations have it that it might challenge the US dollar supremacy. Its pilot phase was initiated by the Agricultural Bank of China within four cities; a milestone that has accelerated talks around CBDC's across the world.
The Libra Threat
The PBoC picked up pace as recent as last year when Libra was announced. Chinese authorities saw Libra as a threat should it have sailed through as planned. This is not to say the Facebook-led project should be counted out.
As far as recent milestones are concerned, Libra added Singapore's State Investor, Temasek, to the association. The Swiss-based organization has also appointed HSBC's Chief Legal Officer, Stuart Levey, as its new CEO.
Despite its value proposition, Libra has faced significant regulatory hurdles coupled with an exit by its initial members like Mastercard. Going by these stats, China appears to ahead of Western economies including the U.S when it comes to digital currencies. In fact, this gap could widen if Washington proves slow to regulate and support digital currencies with the possibility of a Fed backed coin.
China's Market Compatibility with Digital Currencies
China's population has shifted from credit cards to mobile payment apps in recent years. This market dynamic has, in turn, created an ecosystem for digital currencies to thrive hence the case for ‘DCEP'.
Currently, over 80% of Chinese smartphone users are able to make mobile payments through Alipay and WeChat. It, therefore, makes it more seamless for the Chinese State-owned banks to issue DCEP wallets that will be used as storage for the country's CBDC.
The COVID-19 pandemic has also favored China's timing of the ‘DCEP' release given that the world is moving to paperless money. Will China lead the way toward a regulated crypto space? In its ongoing NPC and PPC annual political advisory meetings, some delegates have suggested the creation of a blockchain development fund to boost the sector's growth.
There is also a proposal to create a regional stablecoin backed by four Asian currencies; YEN, WON, HKD and YUAN. With such initiatives, China is already assuming the leadership role as we move towards digital economies.