With the emergence of cryptocurrencies, the creation of Centrally Distributed Digital Currencies (CBDCs) followed. CBDCs are nothing but the digital version of government issued currency notes and coins. The government controls and backs the currency, unlike Bitcoin. Governments of various countries are joining the race to push the use of digital assets.
Tech giants step in
The People’s Republic Of China has been ramping up efforts to facilitate the mass rolling out of the digital yuan also known as the e-CNY. They actually have a huge first mover advantage as the government has been working on this plan since 2014. The government has aligned with the nation’s largest tech giants, Alibaba and Tencent.
The question arises whether citizens will use the digital yuan when they already use Alibaba’s AliPay and Tencent’s WeChat Pay. Tencent announced that the WeChat messaging app is now supporting e-CNY. This is an instrumental move, as WeChat is used by the majority of the nation. AliPay is also a partner of e-CNY.
The government has launched their app to enable users to sign up and use e-CNY in 10 major cities. The truth is that there is no tangible incentive for citizens to switch from AliPay and WeChat Pay to the e-CNY app. However the government has been pushing for it as the government has been using lotteries to hand out free digital yuan. This is done with the hope that citizens will use it and continue to use it thereafter.
Beijing Winter Olympics
The e-CNY will play a big role at the upcoming winter olympics in 2022. The venues will be enabled for all the audience to use e-CNY for making payments and other transactions. This is China’s first initiative to really demonstrate its use in a macro international setting. Many overseas tourists and foreign visitors will be able to use the currency at ease.
However many analysts have predicted that the transaction volume of e-CNY will be a fraction of that of WeChat Pay and AliPay.
China has a significant head start and advantage over all other countries as of now. How they handle the roll out will set a precedent for others to follow.
No matter how convenient the e-CNY is for making payments, the government will have to really incentivise for an easy transition. They will need to make the e-CNY a better alternative than just using digital payments systems to make this a successful venture.