The power of electronic money is evident in today’s technologically evolved world—just take a look at two of China’s largest mobile payment services: WeChat Pay and Alipay. Seeing the economy’s massive reliance on this transaction form, the Chinese government themselves will soon become a major player in this industry.
In 2014, the People’s Bank of China created a central bank digital currency (CBDC), better known as the digital yuan or e-CNY. However, this digital currency is not yet official, but undergoing real-world trials. Local governments and banks from Shenzhen, Chengdu, Shanghai and more cities started handing out digital money in the form of a lottery to the public in 2020. So far, the public has spent over 2 billion RMB using e-CNY at participating brick-and-mortar and online stores. During these trials, the digital currency can only be accessed through an app, which is also connected with multiple state-owned banks and online bank MYbank.
Besides the basic market penetration aspect, the government has multiple reasons for heading down this avenue. For one, they hope to replace traditional bank notes and coins in circulation. Cash is obviously expensive to produce and store, so adopting the e-CNY can help eliminate that expense. In addition, the People’s Bank of China can gain insight into any illegal activity occurring, since online transactions can be better tracked than traditional cash.
While the Chinese government has insisted that the new digital currency will only serve as a “redundancy” and “back-up,” state banks believe that the government hopes to undercut the market leadership of Alipay and WeChat Pay—both of whom are private companies. Other than reducing this systematic risk, both Alipay and WeChat Pay own a massive amount of data and control 94% of China’s digital payment market. As a result, the government seeks to control a portion of this data, especially to gain insight into monetary transactions and consumer spending patterns.