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Analysis: China’s State-Sponsored Cryptocurrency to Disrupt the Mobile Payment Market

After witnessing the success of digital currencies throughout the world, the People’s Bank of China is getting ready to launch a state-sponsored digital currency, and according to new analysis, it may overtake the mobile payment market from Alipay and WeChat Pay.

The world is slowly moving towards online channels for payment transactions. We have already seen some major projects developed under the light of these trends such as Facebook’s upcoming cryptocurrency Libra. To keep a hold in the market, the Chinese central bank has come up with their own sovereign digital currency, currently known in the market as China’s Central Bank Digital Currency (CBDC).

The project was initiated in 2014 when the PBoC announced it will launch its own digital currency to cut the costs circulating cash and boost control of money supply among policy makers. The crypto project has maintained its distance from media’s attention; however, many reports suggest that development of the cryptocurrency has been accelerated in the past year.

China has an incentive to roll out the virtual currency sooner than expected. The state reportedly asserted that cryptocurrency generates disorder, with investors trying to sell off the conventional fiat money and buying up digital currency. This approach may maintain stability.

And it is no surprise that somehow the Chinese government wants a digital currency network which it can regulate. Leaders have tried desperately to improve China’s sovereignty over foreign technology, and this would be an obvious next step.

The most recent details came from Mu Changchun, the deputy director of PBoC payments and settlements department, in an industry conference where he mentioned that the PBoC will rely on other Chinese commercial banks to fulfill its roles as a conversion agent between cash and the digital currency, controlled and developed by the PBoC.

He believes “the two-tier issuance system will be helpful to restrain the public’s demands for crypto assets and strengthen the country’s sovereign currency.” Most notably, Changchun also mentioned that the new PBoC’s digital currency “may not necessarily be dependent on blockchain,” but will use a much more complex structure.

Changchun did not comment on how daily users might engage with this conceptual model or to what degree distributed ledger technology is actually used by the CBDC. And it remains unknown when the central bank is planning to sample and roll this out or if it will be optional or compulsory for Chinese consumers or not.

According to an analyst at DBS Group Research, Cindy Wang, two payment system giants, Alipay and WeChat Pay, collectively owns 90% of the mobile payments market share in China. The state-sponsored cryptocurrency may directly provide an alternative to these payment systems and might disrupt their current hold in the market.

Banks Will Act as Fiat-to-Crypto Conversion Agents

Additionally, Wang alleges that the Chinese digital currency can help limit capital outflows. She states:

“Currently, banks are under pressure to retain their deposit base because, with the money market funds distributed by third-party payment providers like Alipay or Tencent, some of the idle money held in mobile payment accounts are leaked out of the banking system into the hands of fund managers.”

Apart from all of this, the People’s Bank of China made a smart move by proposing Chinese commercial banks to act as conversion agents too. According to Cindy Wang, involving these banks as fiat-to-crypto conversion agent, PBoC has introduced trust inside the system. Whenever a customer wants to convert from PBoC-backed digital currency to Yuan, these banks will make sure that the money is transparently deposited into the customer’s account.

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