Who will be the next "rival" of Alipay and WeChat Pay? Central bank digital currency!

The People's Bank of China is getting closer to issuing digital currency, and is expected to become the first central bank to develop digital currency and carry out real applications. Some media said that online payment platforms such as Alipay and WeChat Pay may face a new competitor - the People's Bank of China!

At the end of December last year, according to 21st Century Business Herald, the central bank's digital currency research has achieved phased results, and the prototype system Demo of the central bank's legal digital currency is expected to be launched after the Spring Festival. Prior to this, the prototype plan for the central bank to issue legal digital currency had completed two rounds of revisions. On January 25 this year, Caixin reported that the blockchain-based digital bill trading platform promoted by the central bank has been successfully tested. In addition, after the Spring Festival, the central bank's digital currency research institute will also be officially listed.

In fact, as early as 2014, the central bank had established a special research team , and further strengthened its strength in early 2015 to conduct in-depth research on digital currency issuance and business operation framework, key technologies of digital currency, etc.

The central bank's digital currency will have a great impact in the consumer sector. According to media reports, when consumers pay for things, using the central bank's digital currency may be no different from using WeChat or Alipay. Merchants can collect payments directly from consumers, reducing transaction costs in the middle.

Nowadays, online payment, especially mobile payment, is almost everywhere in Chinese stores, restaurants and other consumption places. According to the research data provided by iResearch, by 2020, the size of China's mobile payment market is expected to reach 6.3 trillion US dollars , and in the next few years, China's mobile payment market is expected to maintain an average annual compound growth rate of 33%.

However, in China, online payment is widely used, challenging the position of the Chinese central bank, which manages digital and physical currencies. Because of this, the central bank is more urgent to develop digital currency.

Duan Xinxing, vice president of OKCoin, one of China's largest bitcoin trading platforms, said that digital currency will enable the central bank to more accurately understand bank lending, where funds go and the speed of credit creation, which is crucial for the central bank to fight money laundering and make monetary policy more effective. Issuing digital currency will make it easier for the central bank to monitor risks in the financial system and track transactions across the economy.

In January 2016, the central bank stated at a digital currency seminar that issuing digital currency can reduce the high costs of issuing and circulating traditional paper currency, improve the convenience and transparency of economic transaction activities, reduce illegal and criminal activities such as money laundering and tax evasion, and enhance the central bank's control over money supply and circulation.

According to China Finance magazine under the central bank, Yao Qian, head of the preparatory group of the central bank's digital currency research institute, pointed out in September last year that the overall framework for the issuance of China's legal digital currency is: based on the current RMB management principles, the issuance and withdrawal of the central bank's digital currency are based on the dual system of "central bank-commercial bank".

In the central bank's digital currency system, there are the central bank's digital currency issuance library, the commercial bank's digital currency bank library, and the digital wallet of the user end (such as a mobile phone). The relationship between the three is as follows:

According to the total amount of digital currency issued, the central bank will uniformly generate digital currency (i.e., produce digital currency funds) and store them in the central bank's issuance library;

According to the commercial bank's digital currency demand application, the digital currency is sent to the corresponding commercial bank's digital currency database, that is, the digital currency is sent from the issuing database to the bank database;

When a user applies to withdraw digital currency, the digital currency goes from the bank vault to the circulation link and enters the user's client's storage medium (such as a mobile phone), that is, from the bank vault to the user's digital wallet;

In the circulation process, digital currency is actually transferred between two users' respective digital wallets to complete payment. At this time, payment is divided into online transactions and offline transactions.

Also in September last year, Fan Yifei, deputy governor of the central bank, wrote in China Finance that it is inevitable for the central bank to promote the issuance of legal digital currency. The central bank's digital currency is guaranteed by the national credit, and can achieve simultaneous online and offline applications to the greatest extent, maximizing transaction convenience and security.

Today, the People’s Bank of China is not the only one eyeing digital currency. The Bank of Canada, the German central bank, the Monetary Authority of Singapore and the Swedish Central Bank are all studying digital currency.