China 2015 unveiled a framework for the regulatory approval of a national digital currency while key players evaluated the viability of a yen-backed digital currency within their cross-border payment systems. In addition, this App offer features for bitcoin traders.
For the longest time, Western media has speculated that China would have no problems with its vast domestic e-payment market to complete this feat as long as it has sufficient financial backing from its government.
But in terms of regulations and security protocols in place, China still needs to overcome numerous challenges and shortcomings (some even being very obvious to most) in promoting electronic payments by settling cross-border transactions to ease traffic flow. For example, one of the most debated topics is how to cope with the vast transaction volume in yuan-denominated electronic payments in China.
Mobile Payments are skyrocketing in china:
Approximately 620 million people have active cashless payment accounts (or more) in China without any credit or debit cards, which shows how important it is for the Chinese government to contemplate alternatives for this vast market. In addition, the Bank of China’s latest research shows that at least 1.45 billion people are using mobile payment services such as WeChat Pay and Alipay, with the future growth and development of these platforms being critical drivers for digital currencies to take off in China.
China’s largest payments network has already been in talks with the People’s Bank of China to formulate a framework that can ensure more transparency and reliability in settling cross-border payments. The focus is on addressing some of the issues faced by its clients, such as currency conversion rates, foreign exchange risks, and transfer charges related to traditional bank transfers.
Alipay and WeChat now accept digital yuan;
Alipay, which has over 450 million users, and WeChat Pay, with over 600 million customers, have all contributed to the spread of digital currency; for example, if you have an Alipay account, does it make sense to settle a transaction in traditional Chinese currency when you can settle it using a stable digital alternative.
There have been several projects to back up the reputation and enthusiasm of both Alipay and WeChat Pay by successfully settling cross-border payments. However, these still only apply to the Chinese Yuan. WeChat Pay has continued its penetrating growth in cross-border payments since nearly two years ago with its payment service expansion.
How can china’s citizens use digital yuan?
Alipay and WeChat Pay both have a vast user base, which means the Chinese government can start introducing digital currency for the yuan to these users without having to educate people.
Alipay and WeChat Pay are used as electronic wallets in China to pay for goods and services at over 6 million merchants. For some of these merchants, it is an alternative way of accepting payments without accepting traditional bank card transactions. Alipay has even expanded its e-wallet offerings in the US with a new mobile payment app, offering an alternative way of paying using Alipay.
Imagine if these same retail outlets accept soft-touch, easily manageable central bank digital currency. It opens the gateways for other traditional payments, such as credit card transactions or alternative payment methods like gold or cash.
A closer look at CBDC;
China’s central bank has agreed to allow some financial firms to issue yuan-denominated digital currency after years of hobbling efforts because they feared people could use it for money laundering or destabilizing the economy. However, the People’s Bank of China announced an outright ban on private digital currencies in 2021 after a wave of bitcoin-like efforts, despite the government’s backing of associated blockchain technology as a potentially disruptive innovation.
It is beginning to change, with the central bank saying that some firms can issue “narrowly targeted and compliant” digital currencies under its watchful eye. They have managed to get a firm grasp of their new technologies. However, it is already difficult to meet the demand for new technology coupled with more secure systems to prevent future security breaches in China.
Financial institutions are known to have been working on proposals since 2016 that would push legal boundaries on digital currencies, but regulators have been largely unwilling to back their efforts publicly. The PBOC has published a plan that lays out its approach of using a baseline regulatory sandbox for firms issuing digital currency and obtaining prior approval for any token sales.
Further steps include entrusting a third-party agency with evaluating applications, setting up business standards and safety procedures, and publishing an oversight report every three months. According to Google Trends data, China’s public interest in Bitcoin has plummeted dramatically since the beginning of 2018. China was the most popular country by search volume for Bitcoin as recently as this January, with its search term volume nearly 20 times higher than that of the US at its peak. However, that number has fallen to around 10% today – under the same relative level as searches from Russia and South Korea – and is continuing to fall.