Many countries may be pursuing a central bank digital currency (CBDC) now but top consulting firm, Deloitte says the dominance of tech giants Alibaba and WeChat will make China’s version different.

“In fact, introducing a CBDC in China would differ from other countries due to the duopoly of WeChat Pay and Alipay in terms of digital payment services,” its Are Central Bank Digital Currencies (CBDCs) the money of tomorrow? report states, touching on how China has emerged a leader in CBDC development and may be the most advanced compared to other countries.

The two major payment platforms have been vital to adding value to China’s overall digital economy which has reportedly grown to 35.8 trillion yuan in 2019, according to Yang Xiaowei, deputy director of the National Cyberspace Administration. They both account for 90% of China’s $17 trillion mobile payments market (as at 2019) even as the country’s payment system develops.

China’s leading role in the CBDC space was also a topic of interest to Ajit Tripathi, an Executive Director at Binance, who, according to key takeaways from his conversation with Citi analyst Ronit Ghose, “believes China’s DCEP is likely the strongest business case for a CBDC as it can reduce heavy reliance on US$ across their trade partners (e.g. Africa) and compete against domestic third-party private players who dominate retail online payments.”

Adoption still a challenge
Ahead of several other nations, the People’s Bank of China launched its Digital Currency Electronic Payment (DC/EP) project in 2014 based on a retail model. It aims to increase the efficiency of China’s payments system, replace cash, and make peer-to-peer transactions more secure. It’s now been piloted in several cities, and some commercial banks have already run internal tests like cash-digital money conversion, account-balance checks, and payments.

“Adoption is their biggest challenge domestically,” says Tanvi Ratna, the founder of Policy 4.0 which recently held a press conversation and launch event on its deep-dive report series focused on the Digital Yuan and the key challenges before China’s DC/EP. “The currency will go up against many other digital forms of payment.”

Deloitte’s take on China’s CBDC model
“It should also be pointed out that the proposed “hybrid” CBDC model is intended to complement cash for online transactions,” the Deloitte report notes, hinting on China’s model as a blended version of the direct and indirect retail CBDC which enables payments between individuals and businesses possibly low in value but large in volume and are carried out through different payment instruments. It adds:

“The possible issue of disintermediation would not arise as the Chinese central bank would only be responsible for providing the necessary infrastructures, while the public would need to liaise with commercial banks and payment service providers to use CBDCs.”

A wholesale CBDC model, on the other hand, would enable the payment and settlement of transactions between financial institutions. It could help central banks achieve their objective of maintaining financial stability by being a better transmission channel to money and lending markets, helping preserve the monetary sovereignty of central banks.

However, at this point, Deloitte says they do not have a clear-cut view of what a successful future CBDC model may be but cites common outcomes and important differences between the various scenarios of central banks for a future CBDC platform. One of such is its envisaged technology to either be based fully on distributed ledger technology (DLT) or consist of a balance between new DLT solutions and legacy database platforms.