China’s digital currency is often seen as a foil to Facebook’s Libra, but the real competition may be closer to home.
The People’s Bank of China hopes “its new digital currency will reduce the dominance of Alibaba and Tencent in digital payments,” sources told the FT. The dominance of Ant, Alibaba’s fintech arm, and WeChat Pay has reportedly chafed central bankers.
- Ant is eyeing a $200 billion IPO. Its Alipay app controlled 55% of China’s mobile payment market in Q1, per iResearch.
The PBOC is piloting the currency, known for now as “digital currency/electronic payment,” with state-run banks and telecoms in four Chinese cities. DC/EP is backed 1:1 by deposit reserves and doesn’t generate interest. It could eventually expedite digital payments and interbank/cross-border settlements.
As always, there’s a U.S.-China angle. Some geopolitical pundits say DC/EP is designed to dethrone the U.S. dollar as the world’s reserve currency. “If America is smart, it will wake up and start competing for dominance in digital payments,” historian Niall Ferguson has written.