Blockchain Cross-Border Financing Pilot Strengthens China’s Digital Currency Ecosystem
China’s development of a blockchain cross-border financing pilot according to the deputy head of the State Administration of Foreign Exchange (SAFE) is consistent with its expanding digital currency ecosystem.
Lu Lei suggests they intend to expand the scope of the platform’s pilot gradually – it was first launched in March – beyond its current 19 provinces and cities as at November and the application scenarios of blockchain technology in cross-border financing and macro-prudential management.
SAFE, the Chinese foreign exchange regulator, is currently the only one registered by a central state agency at the Cyberspace Administration of China. Reuters reports Lu noting that they’ll push forward a prospective study on foreign exchange reforms to deal with cryptocurrency and explore the construction of the foreign exchange regulation and technology system under the new situation.
The disclosure meets with another related development: the announcement by the country’s social media giant Tencent that it’s planning to create a cryptocurrency research group to advance blockchain technology research projects. Tencent had once claimed it won’t issue a digital currency, but it runs WeChat Pay and QQ Wallet serving close to a billion people, which is about 39% of China’s over $7 tln mobile payments industry (China’s third-party mobile payment market is led by Alipay with about 54% market share) and makes it one of the largest payment processors in the world.
The Shenzhen-based internet giant is one of the seven institutions rumored to be working with the PBoC on China’s proposed digital currency which is supposedly introduced to safeguard against any failure on the part of WeChat Pay and AliPay in the payment system. In October, Tencent announced it would open a virtual bank to provide financial services leveraging blockchain technology. A month later, its existing digital bank, WeBank, became the first technical infrastructure provider for China’s national blockchain network.
The expansion drive also comes as the Shenzhen Stock Exchange releases its Shenzhen Blockchain 50 index, which seeks to “reflect the performance of blockchain industry-related companies in the Shenzhen stock market and provide investors with a richer index investment vehicle”.
Shenzhen is somewhat key to blockchain development in China. In a guideline issued in August, the Central Committee of the Chinese Communist Party and the State Council committed to “support digital currency research as well as mobile payments and other innovative applications in Shenzhen.” They will also seek to “promote interoperability with Hong Kong and Macao financial markets and mutual recognition of financial [fund] products.”
The last quarter of 2019 saw China respond surprisingly to blockchain technology as the country’s president Xi Jinping charged countrymen to seize the opportunity it offers. In the following two months, several blockchain-related companies witnessed a spike in interest while those that were caught unaware sought to be more attractive.
With 2020 set to be a year of implementation of new features and products, more blockchain projects in China are likely to scramble to outdo for investors’ interest as the interconnectedness of China’s broadening digital currency ecosystem gives them more room to innovate and grow.
China’s digital currency agenda is no longer a surprise to many though speculation still trounces clarity on what it would bring and mean to the global economy. One key commonality across the board is the digital currency’s use for control over money supply and over citizens’ data for economic research and law enforcement.