China’s digital yuan is set to counter the dominance of private firms on the financial market. Local fintech players like Alibaba have been leading digital retail transactions in the country for quite a while now. The fast-growing digital currency also seeks to compete actively with the U.S. dollar on the market.
The state-owned digital currency, which is being tried in various Chinese cities, is becoming increasingly popular as it also serves as a substitute for cash. The project has reached significant milestones with the pilot tests being conducted in four Chinese cities.
According to the Financial Times report on August 4, 2020, the digital yuan seeks to create a more level playing field in online payments with local fintech players. Until recently, most mobile online transactions have been controlled by private firms. In particular, private firms such as Alibaba reportedly overseen more than 55% of China’s 19 trillion dollars online mobile transaction market in 2020 alone.
However, following the successful launch of the digital yuan, all that is expected to change in the market in the near future. Banks in China are lagging behind in electronic payment transactions. Representatives of China’s Central Bank argued that they intend to simplify digital payments while increasing the domestic use of the yuan.
It is also worth noting that China intends to reduce over-dependence on the US dollar.Following the launch of China’s digital yuan, the Government intends to compete with the dollar in financial market trade. More importantly, they also aim to ensure that the US currency is not the only reserve currency in the world.
Local fintech Players issue response on China’s CBDC impact
A senior official from Alibaba has revealed that the company is in talks with the government about the integration of the Digital Currency Central Bank. He also said that Alibaba supports the development of the digital currency in the country. However, he insisted that digital payments are still small in scale and directly attributed the rate of growth of the yuan to developments already established by Alipay and Tencent. With the successful development of the digital yuan in progress, it is only a matter of time until cross-border payments between traders are made possible.