It Will Take At Least 10 Years For Digital RMB To Compete With WeChat Pay, Alipay And Bank Cards
China is working towards achieving an indigenous digital currency that is backed and controlled by the state. The Chinese government’s activities so far towards achieving this goal has earned it a leadership role among the several nations that are pursuing similar objectives. As a matter of fact, the expectation that the digital renminbi (RMB) will be launched by 2021 is already high.
Considering China’s prominence in the digital currency industry and the motivation towards achieving this goal, the expectation for possible immediate adoption is also high. In some cases, there are suspicions that the expected digital RMB will immediately overrun other existing payment systems in the country such as Alipay, WeChat Pay and bank cards.
Contrary to this expectation, a top government official believes that the mass adoption of the digital RMB, even after creation will still take some time. Li Lihui, leader of the Blockchain Working Group of the China Internet Finance Association and the former President of the Bank of China believes that it will take at least the next ten years before the proposed digital RMB will be able to compete with the like of Alipay, WeChat Pay and bank cards.
I predict that in at least the next ten years, Alipay, WeChat Pay, and bank cards will still be the main payment tools.
These remarks were made by Lihui in a discussion session titled: “Digital Currency: From Concept to Reality” during a conference. He also clarified that the level of prominence to be achieved by the proposed project will be determined by market forces. This was after being asked whether the government-backed digital currency will replace other established payment systems and develop into a global instrument. “I think it will be a process of market decision”, he said.
Apart from the question of competition with other established systems and the likely process of adoption, Lihui also discussed some of the benefits that the state-backed digital currency could bring. He noted that the implementation of the digital RMB would eventually save transaction costs, which is a fundamental element of digital currencies. Also, counterfeit prevention is another benefit of the project that Lihui pointed out.
Other key benefits that he pointed out include the ability for data to be viewed in real time, which will enable proper control of monetary supply. Also important is the ability to track capital flow, which will make it easy to fight financial vices like money laundering and tax evasion.
The digital RMB project is still in its early days of development. This is a fact that Lihui acknowledged in his presentation, as he noted that it is not even being widely promoted yet. “At present, my country’s legal digital currency is still in the early stage of technical verification, he said. “Before it can be widely promoted, a successful mid-term test is required”.
Alipay and WeChat Pay have risen to prominence in their several years of existence. The volume of transactions and spread that they cover positions them as strong competitors to any payment system both presently and in the future. No doubt, state-backed projects will surely enjoy the privilege of friendly policies and favourable operational framework. However, to dislodge the above mentioned entities in an industry where they are already part of human existence will not be an easy task. Perhaps, these are some of the factors that Lihui may have considered before making his projection.