China e-commerce company JD.com said this week its financial technology affiliate JD Digits is working with the People’s Bank of China to develop a digital yuan ecosystem.
China has been working hard this year on a digital yuan project or otherwise known as Digital Currency Electric Payments. The business community supports the e-currency and is working with the PBOC’s Digital Currency Research Institute. JD Digits said it will bring innovation to both online and offline digital yuan – including mobile and Blockchain platforms and a crypto-yuan wallet ecosystem.
Embedded In A Bigger Plan
China said Tuesday it would build three new pilot Free Trade Zones in Beijing, Hunan province and Anhui province – bringing the number of FTZs to 21. The zones will include financial technology centers, legal digital currency zones and a digital financial system in Beijing. It will rely on the central bank’s trade finance Blockchain platform and form a trade financial zone standard system. Beijing-based JD Digits is expected to join the free trade zone.
JD.com said JD Digits would use the project to promote research and development of basic mobile and Blockchain technologies and to integrate the development in virtual and real economies. The parent retail platform JD.com will promote new services.
The Digital Currency, which is also referred to as the Central Bank Digital Currency, is a digital unit stored in digital wallets as part of an app authorized by the PBOC that can be downloaded by users. Since August, the Digital Currency has been introduced in a few trial regions. The authority said current testing revolved around smaller transactions so far such as online retailer purchases and salary payments.
The PBOC said in August it was developing policies to secure the Digital Currency with local assistance in cities including Shenzhen, Chengdu, Suzhou and Xiong’an and departments of the 2022 winter Olympic Games. The expansion of the Digital Currency to a broader application in other regions depends on the practical success of these pilots.
Pioneering The Digital Currency
According to Reuters, PBOC’s magazine China Finance published an article Monday that said “China needs to become the first nation to issue a digital currency in its push to internationalize the yuan and reduce its dependence on the global dollar payment system.”
Issuance and circulation of the digital currency may offer new opportunities and challenges to existing international finance. The right to issue and control a digital currency may become a new battlefield of competition between countries, the article said.
China has been exploring Digital Currency since 2014. In August last year the PBOC said China’s Digital Currency was “ready” – without giving a timeline. However, it said it wouldn’t be Blockchain based. It would feature a two-tier structure involving the PBOC issuing the digital currency to banks or institutions. The currency would then be circulated to customers and within local economies.
Banks have been less active in China’s electronic payments landscape which is mostly dominated by Alibaba-backed Alipay and Tencent-backed WeChat Pay. Alipay had 55.4% of China’s mobile payments market in the first quarter of 2020, according to iResearch.
Working With Digital Platforms Is Paramount
PBOC has been in collaboration with several online companies to test its digital currency.
PBOC announced in July its Digital Currency Research Institute executed a strategic cooperative agreement with DiDi Chuxing, a company that provides national app-based transport services. Additionally, a food delivery and consumer sales company, Tencent-backed Meituan-Dianping, with 435 million active users, also joined the test.
Regulators and executives at Ant Group, Alibaba’s financial affiliate, said PBOC officials had Alipay and WeChat Pay, the dominant digital payments platforms, firmly in their sights. China’s central bank is optimistic that the digital yuan will help to loosen the grip technology giants Alibaba and Tencent have on digital payments, Financial Times reported Aug. 5.
Analysts said if the digital currency is successful, it was expected to alter the financial landscape and might be used for cross-border payments with international trading partners.