China’s digital yuan needs to eliminate the country’s domestic e-payments giants first, before it can consider competing against the green back internationally, says Martin Chorzempa of the Peterson Institute for International Economics .
“A lot of people talk about (the digital yuan) being a driver of renminbi internationalization,” Chorzempa, a senior at PIIE, told CNBC’s “Street Signs Asia” on Wednesday. “I think they have had to beat Alipay and WeChat Pay in China before, I think, they can make teeth in the US dollar.”
“It will be the central bank compared to the big tech companies and that will be very interesting to watch,” he said.
“It will be the central bank compared to the big tech companies and that will be very interesting to watch.”
Martin Chorzempa
Lead Fellow, Peterson Institute for International Economics
China’s central bank has been developing the digital yuan and is expected to operate in a similar way through transactions through existing payment apps. The nation’s capital Beijing recently issued $ 1.5 million as part of a digital currency test during the Lunar New Year, following similar trials in Shenzhen and Suzhou.
Photo taken on February 12, 2021 showing a digital RMB red envelope during the “Wangfujing Digital Snow and Ice Shop Festival” in Beijing, the capital of China.
Costfoto | Barcroft Media via Getty Images
Chorzempa said one of the main reasons driving the campaign for the digital yuan was the desire for a state-backed and state-controlled alternative for giants such as Alibaba-linked Alipaba app and Tencent’s Wechat Pay, which -currently processes around 95% of digital payments into China.
Unlike most other major economies around the world, mobile payments – largely through the Alipay and Wechat Pay app – have made money in the last few years as the mainstay. way of paying customers in China.
“(The digital Yuan) is something that is truly unique among the major economies,” Chorzempa said. “China … is the most advanced level of gin in digital currency and it’s encouraging to watch.”
‘Nothing like bitcoin or ethereum’
To be sure, Chorzempa said that there are very few digital yuan in China similar to cryptocurrencies like bitcoin, which is known for its volatility.
“I would say the safety standards (of the digital yuan) are very high and the risk is low,” he said. “It’s designed to have the same value as any regular renminbi, so price changes shouldn’t be a concern.”
Intermediaries selling the digital currency in China are also expected to be “very safe and carefully regulated” as long as they are controlled by the government, Chorzempa said.
“I wouldn’t worry too much about the safety of digital renminbi in a central bank’s regulated portfolio,” he said.
Outside of China, Sweden is expected to be among the first advanced economies to launch digital currency, according to the PIIE researcher.
Since Facebook first proposed the launch of the Libra cryptocurrency, now rebranded by Diem, there has been a “huge wave of interest” among central banks worried that a private tech company could “take their money over ”in a similar way to how Alipay and WeChat dominate payments in China, he said.
“I expect central bank digital currencies to continue to expand worldwide,” Chorzempa said.
– Evelyn Cheng from CNBC contributed to this report.