23 Sep 2019  (306 Views)
Why does China want to introduce a digital currency?

China already has two successful e-payment platforms, namely AliPay and WeChat Pay. It is widely used throughout China. Why does the govt want to introduce a digital currency?

Here are my views. 

I think the digital currency, which is denominated in yuan, will be used outside of China. At present, foreigners need to have a China bank account to open an account in AliPay and WeChat Pay. This is probably a regulation imposed by the China bank regulator. It is intended to ensure that the Chinese yuan is under control of the regulator.

When the digital currency is introduced, the account to use the digital currency will come under the control of the regulator, and not the platforms. The regulator will allow foreigners to open an account without the need to have a bank account in China. As the account is under the control of the regulator, they will be able to manage the risk of currency manipulation by third parties. 

Why will foreigners want to open a Chinese yuan account? They want to buy products from China and to pay in yuan. 

This new facility will challenge the dominance of the credit cards controlled by Visa and Mastercard, and transacting mainly in US dollars. It will provide an alternative and bring down the dominance of the US based platforms. 

I also expect the China platform to operate in local currencies, but convertable to China yuan. This is simular to the Visa/Mastercard platform that convert the local currency to US dollar.

A few years down the road, I expect to see two large dominant payment systems. The first is the current payment system managed by Visa and Mastercard, and largely based on US dollars. The second is the digital payment system managed by China or a subsidiary of the regulator and based on Chinese yuan. The consumers will benefit as it will reduce the cost of transactions.

This may be a solution for Singapore's move to adopt cashless payments. We can use the China yuan platform.

Alternatively, our Monetary Authority of Singapore can adopt the same concept and implement a digital currency based on the SG dollar that is similar to the platform now operated by AliPay or WeChat pay.

MAS - are you listening?

Tan Kin Lian 

Vote - do you agree that the China digital currency platform is intended to be widely used outside of China?


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