Today, a report in the Global Times claims that the People’s Bank of China (PBoC), China’s central bank, in conjunction with private firms has completed the basic functionality of China’s central bank digital currency (CBDC). It says that the current activity is around drafting laws to introduce the digital renminbi, also referred to as DC/EP (digital currency, electronic payment).
However, the article is based on un-named insider sources and public information.
It’s unclear whether the claims that the basic functionality is complete are based on the fact that Alipay has published five CBDC patents over the last two months, which cover issuance, recording transactions, digital wallets and supervision.
The Global Times states that China should seize the opportunity while the rest of the world is cutting interest rates and dealing with the COVID-19 pandemic.
“If there is a chance China is considering lowering its interest rate into negative territory as a final option and directing such policy to commercial loans and lending, a circulated digital currency rather than M0 will be able to achieve that,” said Cao Yan, managing director of Digital Renaissance Foundation.
The Global Times cites Alibaba, Tencent, Huawei and China Merchants Bank as participating in the development of the digital currency.
Four months ago, there were reasonably reliable reports that China was about to start CBDC pilots. The firms known to be involved are Huawei, the four major state-owned banks, the three big telecom companies. Tencent, which owns WeChat Pay, has a digital currency unit. Together with AliPay, the two payments firms are likely to have some involvement given their ubiquitous wallets that dominate mobile payments in China. There has been speculation about numerous other participants.
But shortly afterwards, the ‘pilot’ was downgraded to ‘internal testing’. That’s despite PBoC deputy governor Fan Yifei giving a speech in which he said functional research and testing was complete and the next step was pilots.
Whether or not the latest report is accurate, it’s likely that the DC/EP is progressing. There are multiple goals, including creating more competition for the likes of WeChat Pay and AliPay. But a CBDC could play a critical role in the denomination of cross border trade. Given the current chaos in the markets, China might see an opportunity to make inroads in challenging the dollar’s dominance. A report in the Chinese press yesterday claims that COVID-19 will trigger de-dollarization.