China's Central Bank Digital Currency (CBDC) digital yuan, or e-CNY, has won a certain victory after completing tests in major Chinese cities. But the next war is now being fought between digital payment giants WeChat and Alipay.
China is at the forefront of countries exploring CBDCs after Beijing's digital yuan was successfully tested in 11 major Chinese cities. The digital yuan has been used to conduct more than 70 million retail transactions worth nearly $6 billion. According to China's Central Bank, the People's Bank of China (PBoC), about 20.8 million people have currently signed up for the digital yuan.
The Chinese government is now confident that the project will be launched globally in February 2022 at Beijing Winter Olympics. According to CoinIdol, a world blockchain news outlet, tickets to the Olympics could be sold for the digital yuan and preparations are already underway.
Currently, major Chinese banks have committed to offering e-CNY services to their customers. Some banks have allowed foreigners living and working in the country to open e-CNY accounts with their foreign passports and residence permits. Chinese banks are also working with other payment service providers at home and abroad to spread the digital yuan. Beijing has joined a partnership involving Hong Kong, Thailand, United Arab Emirates (UAE) and International Bank to explore the application of distributed ledger technology in cross-border payments.
China has long been a leader in digital payments. As of December 2020, more than 850 people in China were using digital mobile payment services. Tencent Holdings Ltd's WeChat recorded 1.2 billion users in 2020, equivalent to almost the entire population of China, while Alibaba Group Holdings Ltd's Alipay saw a surge in usage from just 450 million subscribers in 2016 to 900 million users by the end of 2019.
The rise of e-CNY, while supported by the government, stands in contrast to the two leading digital payment giants, WeChat and Alibaba. The Chinese government is doing everything it can to pave the way for e-CNY, with minimal or no competition. Back in August, the Ministry of Industry and Information Technology (MIIT) tried to block 43 payment apps, including WeChat, for allegedly violating data transfer rules.
Still, WeChat is the leading payment and messaging platform that could be hard to displace. Most Chinese use it not only for digital payments but also for communication. The Chinese government is also concerned about the competition Alibaba poses to the newly created e-CNY. To jump on the bandwagon, the giant is offering its customers the option to subscribe and recharge e-CNY through Alipay App. Therefore, Alibaba might actually contribute to the adoption of the digital yuan.
Currently, China's CBDC has completed tests in 11 major Chinese cities and has conducted more than 70 million digital transactions. However, internal sign-ups are still slow. Major payment companies WeChat and Alipay continue to dominate the market. The Beijing Winter Olympics 2022 will be a test for the success of the digital yuan.