Out of the box China is issuing digital yuan
China is issuing a digital currency. It will be the yuan. It will not be another currency, like the Libra, that can be subject to speculation. To ensure security, it will be based on the blockchain technology.

Why should China issue this digital currency? Surely, the widespread use of e-payments using Ali Pay and Wechat Pay make it unnecessary for the China govt to take this step?

Here are the possible reasons:

a) Ali Pay and Wechat Pay are private enterprises. The China govt does not have control over these privately owned entities. If their security measures are inadequate and their systems are hacked, it could cause a major disruption to the payment system.

b) The digital payment system that China is introducing will allow the govt to have direct control over its digital currency.

c) If the digital currency is found to be stable and trustworthy, it could replace the US dollar as the channel for international settlement. Foreigners and foreign countries may find it to be an acceptable alternative. 

What about the perception that the China govt can track the flow of money? This is perhaps not relevant. The governments in most countries already have the means to track the flow of money, even under the US controlled global payment system. They use it ostensibly as the means to prevent money laundering and financing of terrorism. 

So, the digital currency that will be introduced by China does not add a new dimension of control.

Will the digital currency eclipse the pervalence of Ali Pay and Wechat Pay? I think they will co-exist. Many merchants and consumers are familiar with these two platforms and will continue to use them for convenience and familiarility. Some will use the digital yuan for special purpose, e.g. transaction with the govt, but it will not be at the expense of the current platforms.

China has an exciting future.

Singapore can continue to sleep and remain backwards in the sphere of the use of e-payments.

Tan Kin Lian



 

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