In China, paper money is hardly touched anymore. The QR code for mobile phones, whether generated by the Alipay application or by WeChat, has become the main means of payment. Almost 800 million use it of people, in 2018 it facilitated Already 83% of all transactions in urban areas, and this year will make cash marginal. Thus, it is no wonder that mobile payment systems have become the goose that lays golden eggs for Alibaba and Tencent, the Internet giants that dominate this $ 17 trillion market. with a quota over 90%. Everyone else, including Apple Pay or Union Pay, has to fight for the crumbs they leave.
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At this juncture, taking advantage of the high penetration of electronic payments in the country, the People’s Bank of China (central) has become the first in the world to develop uA sovereign digital currency based on ‘blockchain’ and crypto technology that, however, has an opposite objective to that of most cryptocurrencies, such as Bitcoin: It will serve to track all operations carried out with it and will give the Chinese government almost complete control over the financial system. Logically, it cannot be mined and its value will be the same as that of the yuan.
Escape and money laundering
The objective is to attack capital flight, money laundering and speculation, but also to promote the internationalization of the Chinese currency against the US dollar and reduce dependence on CHIPS and SWIFT —Controlled to different degrees by the United States— in financial transactions. “A sovereign digital currency is a practical alternative to the dollar settlement system and protects against the impact of sanctions or threats of exclusion from the country,” justified the official newspaper ‘China Daily’ in an opinion piece.
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In this moment of tension and “decoupling” of the two superpowers, some Chinese media consider the new digital currency to be a “third wave” against the United States. Not surprisingly, the Chinese government has already warned that Projects such as Facebook’s currency, Libra, infringe upon the sovereignty of countries, which is why all cryptocurrencies are illegal in the Asian giant. “Imagine that we allow it to circulate and that Libra can be purchased in yuan. That would cause a huge currency exchange that would end up depreciating the yuan,” Mu Changchun, head of the Digital Currency Institute of the People’s Bank of China, said at a conference. For this reason, the country’s leaders consider that digital currencies should be minted exclusively by States.
Yours, called ‘Digital Currency for Electronic Payments’ (DCEP for its acronym in English) has begun to be used in May in a pilot project launched in different locations, including Shenzhen – considered the Silicon Valley of China – and with the support of several companies, both Chinese and international. In Suzhou city, for example, the Government will pay half of the transport subsidies of officials in the new digital currency, and in Xiong’an, a new technology center developed near Beijing, hospitality multinationals such as McDonald’s and Subway will accept its use. If everything goes as planned, the DCEP will spread throughout the country and can also be used in the Winter Olympics that Beijing will celebrate in 2022.
As with paper money, the DCEP is circulated through the main commercial banks – which are publicly owned – and stored in users’ electronic wallets, which they can use to carry out transactions even when they are not connected to the Internet. The interface, at least the beta version launched by the Agricultural Bank of China, is very similar to those of commercial mobile payment applications, making adoption easy. Transactions can be closed by scanning QR codes or using the NFC chip for contactless payments.
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“Although from the point of view of the user there are no major differences, from the perspective of supervision by the central bank, and of the future of forms of payment, business, and social governance, this is the most important thing that has been done, “said Xu Yuan, a professor at Peking University, in an interview with national CCTV television. “In theory, with the digital currency you could do without banks. But this project is more political than technological “, added to Reuters a Union Pay employee.
Central bank thing
Between the differences with Alipay or WeChat services There is the fact that commercial banks are not used for deposits – the user does not have to register with a checking account – but the central bank itself, so, in theory at least, no commissions would be incurred during payments. Furthermore, the DCEP is equivalent to the currency in circulation (M0) and the transactions made with it are supervised only by the central bank. When it is officially launched at the national level, for which there is not yet a calendar, it cannot be rejected as a form of payment either.
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“It seems to be the beginning of the end of cash. It seems good to me that China shields itself against the threats that come with cryptocurrencies, which are used on many occasions to commit economic crimes, but I am also concerned that it may end the privacy and that the government finally has access to all our habits “, comments Lin Wei, a student of Economics at Jiaotong University in Beijing.
In any case, China is not the only country that is developing sovereign digital currencies. Japan is also studying the issue. But the difference is in the ability that Beijing has to use the DCEP in the transactions that are carried out in its large global projects, such as the New Silk Road. If you get a relevant part of the world, especially the developing world, to adopt the DCEP, it will not only be a severe blow to the US dollar as the hegemonic currency, but it will also provide China with an incalculable amount of data on all transactions. that are made on the planet.