The CBDC and its associated payment system aim to counterbalance the dominance of tech giants like Alibaba and Tencent
A Financial Times report has revealed that the People’s Bank of China (PBoC) is reportedly using its digital currency electronic payment system (DCEP) as part of a broader central bank digital currency (CBDC) strategy to reduce the market dominance of Tencent and Alibaba in digital payments.
According to the report, Alibaba’s Alipay controls nearly 56 percent of China’s mobile payments market. A source cited in the article said a former PBoC governor allowed the two technology groups substantial freedom, despite objections from the China Banking Regulatory Commission (CBRC) and commercial banks.
As a result, the tech companies expanded their influence to a point where it became difficult to rein them in. The PBoC intends to address this by curbing the dominance of online payment platforms such as Alipay and WeChat Pay, thereby helping to create a more level playing field for commercial banks.
A senior official from the Hong Kong Monetary Authority echoed those concerns in a statement about the role of digital currency in domestic retail transactions:
“It’s about the role of a digital currency in domestic shopping. They want a fairer playing field for the banks. Retail payments are heavily dominated by Alibaba and Tencent, while banks are less active in electronic payments.”
The CBDC project continues to develop steadily. It was recently disclosed that the state-controlled Agricultural Bank of China (ABC) has joined the list of institutions and companies selected to run beta tests with the digital currency.
The ABC has developed an internal mobile application for testing the national CBDC, available to a selected group of employees within the bank.
The app can be downloaded on both Android and iOS devices or accessed via the bank’s internal channels. Staff can use the application to pay using QR codes, carry out transactions and manage payments simply by bringing one phone close to another.
Other partners in the beta testing program include several major fast-food groups such as Starbucks, McDonald’s and Subway, the Chinese e-commerce platform Meituan Dianping and ride-hailing company Didi Chuxing.
Many analysts speculate that when launched, the digital yuan could also be used for cross-border payments. This is seen as likely because the PBoC could integrate DCEP into the government’s $1 trillion Belt and Road Initiative.
South Korea, another country active in the crypto and digital currency space, is also working on launching its own CBDC.