China’s digital yuan must first dethrone the country’s domestic e-payment giants before it can think about competing against the greenback internationally, says Martin Chorzempa of the Peterson Institute for International Economics.
“A lot of people talk about (the digital yuan) as a driver of renminbi internationalization,” Chorzempa, senior fellow at PIIE, told CNBC’s Street Signs Asia on Wednesday. “I think they have to beat Alipay and WeChat Pay in China before they can contain the US dollar.”
“It will essentially be the central bank versus the big tech companies, and that will be very interesting to watch,” he said.
“It’s going to be essentially the central bank versus the big tech companies, and that’s going to be pretty interesting to watch.”
Martin Chorzempa
Senior Fellow at the Peterson Institute for International Economics
China’s central bank developed the digital yuan and is expected to work in a similar way to transactions through existing payment apps. The country’s capital, Beijing, recently spent $ 1.5 million on a digital currency test during the New Year celebrations after similar experiments were conducted in Shenzhen and Suzhou.
Photo taken on Feb. 12, 2021 shows a digital red RMB envelope during the Digital Wangfujing Snow and Ice Shopping Festival in Beijing, capital of China.
Costfoto | Barcroft Media via Getty Images
Chorzempa said one of the main reasons behind the push for the digital yuan was the desire for a government-sponsored and controlled alternative to established giants like the Alibaba-affiliated Alipay app and Tencent’s Wechat Pay, which currently process about 95% of digital payments in China.
Unlike most of the other major economies around the world, mobile payments – primarily through the Alipay app and Wechat Pay – have ousted cash as the predominant form of consumer payment in China in recent years.
“(The digital yuan) is something that is truly unprecedented in the major economies,” said Chorzempa. “China is … by far the most advanced in digital currency and it’s exciting to see.”
“Nothing like Bitcoin or Ethereum”
However, Chorzempa said China’s digital yuan has very little to do with cryptocurrencies like Bitcoin, which are known for their high price volatility.
“I would say that the level of security (the digital yuan) is very high and the risk is low,” he said. “It’s the same value as any regular renminbi, so there shouldn’t be any fluctuations in price to worry about.”
Intermediaries selling the digital currency in China are also likely to be “fairly safe and carefully regulated” as long as they are approved by the government, Chorzempa said.
“I wouldn’t worry about the safety of a digital renminbi in a central bank regulated wallet,” he added.
According to the PIIE researcher, Sweden is expected to be among the first advanced economies after China to adopt a digital currency.
Ever since Facebook first proposed the launch of the Libra cryptocurrency, which has now been renamed Diem, there has been a “great surge of interest” among central banks fearing that a private tech company “might take over their currency,” much like Alipay and WeChat Pay payments dominate in China, he said.
“I assume that the central bank’s digital currencies will continue to expand worldwide,” said Chorzempa.
– CNBC’s Evelyn Cheng contributed to this report.
