China digital currency to ‘provide backup’ for Alipay, Tencent’s WeChat Pay if ‘something happens’ to internet giants
- China’s central banks says the government digital currency is needed to ensure stability if Alipay and WeChat Pay hit financial or technical problems
- China has also called on major central banks to work together to ensure sovereign digital currencies are compatible with each other
A key objective of China’s sovereign digital currency is to maintain financial stability should “something happen” to Alipay and Tencent’s WeChat Pay, the two private platforms that dominate the nation’s vast digital payment market, the country’s central bank has said.
Speaking in an online panel discussion on Thursday, Mu Changchun, the director general of the digital currency institute at the People’s Bank of China (PBOC), outlined how the two policy agendas dovetailed.
“Everybody knows we have two big players in the retail mobile payment market, Alipay and Tencent Pay,” Mu said at the event organised by the Swiss-based Bank of International Settelments (BIS). “They have already taken 98 per cent of the mobile payment market.
“If something happens to them, financially or technically, that would definitely bring a negative impact to the financial stability of China.
“In order to provide a backup for the retail payment system, the central bank has to step up and provide a central bank digital currency service.”
China, already the world leader in digital payments, is aiming to be the first major economy to introduce a central bank digital currency (CBDC). Its successful launch could boost the international use of the yuan and reduce risks associated with cryptocurrencies like bitcoin. The PBOC has been researching and designing a CBDC since 2016.
Mu said it was important central banks cooperated to establish a broad set of “values”, including on monitoring and information sharing, to ensure compatibility between different sovereign digital currencies.
“Central bank digital currency supplied by one central bank should not impede another central bank’s ability to carry out its mandate for monetary and financial stability,” Mu said.
Mu said that cross-border flows of digital currencies must comply with each jurisdiction concerned and that “information flow and fund flows should be synchronised, so as to facilitate regulators to monitor the transactions for compliance”.
Mu said the PBOC had already shared its ideas on information sharing and monitoring with other central banks and monetary authorities.
However, some major central banks such as the US Federal Reserve remain cautious about launching a CBDC.
“Because we are the world’s principle reserve currency, we don’t need to rush this project, we don’t need to be first to market. A dollar CBDC would have potentially large implications here and around the world,” said Jay Powell, chairman of the Federal Reserve, who spoke on another panel at the same event on Monday.
“We’d be sure to think carefully about all of that and to engage very broadly with the public around the world, particularly here in the US before we even approach a decision.”
A survey by the BIS released in January found that 86 per cent of central banks have been actively engaging in some form of CBDC research. The survey also found that work related to retail CBDCs is gaining in relative popularity, with more central banks either looking at both wholesale and retail or narrowing their scope of work down to retail only.
While the Eurozone has been exploring the possibility of rolling out a CBDC, Germany’s central bank Deutsche Bundesbank is concerned that a digital euro could pose risks to banks.
“There are other ways to satisfy the needs of the consumers or firms than a central bank digital currency so there is no rush or urgency to introduce CBDC. I think it’s rather something we should reflect on very carefully,” said Jens Weisman, head of the Bundesbank at the BIS event on Monday.
Bank of Japan Governor Haruhiko Kuroda said last week there was a need for the central bank to “prepare thoroughly” for the time it may need to issue its own digital currency, but there currently is no plan to issue a yen CBDC.