China’s central bank said digital yuan will co-exist with Alipay and WeChat

Out-Law News | 29 Apr 2021 | 4:10 am | 1 min. read

China will develop a digital yuan which will co-exist with payment platforms such as Ant Group’s Alipay and Tencent’s WeChat Pay, an official has said.

Mu Changchun, director of China’s central bank’s Digital Currency Research Institute, outlined the plans at a Bank for International Settlement (BIS) seminar.

Alipay and WeChat Pay dominate China’s online payment market and there are fears that if either suffer financial or technical problems it would affect domestic financial stability. Mu said the Central Bank aims to provide a backup to Alipay and WeChat Pay by developing a digital yuan.

He suggested that interoperability should be enabled between central bank digital currencies (CBDC), "Information flow and fund flows should be synchronised so as to facilitate regulators to monitor the transactions for compliance."

In February China’s central bank joined the Multiple Central Bank Digital Currency Bridge, a cross-border payments project initiated by the Hong Kong Monetary Authority and Bank of Thailand in 2019 to explore digital yuan cross-border payment.

China started to explore its own digital currency in 2014 by establishing the Digital Currency Research Institute in China’s central bank. Digital yuan is different from cryptocurrencies such as bitcoin, it falls under the authority of China’s Central Bank.

The digital yuan has not yet been launched and is undergoing trials in some cities in China. China’s Central Bank and the Hong Kong Monetary Authority have begun technical testing for cross-border use of the digital yuan in April.

Leo Xin of Pinsent Masons, the law firm behind Out-Law, said: “In October China issued the draft Law on People’s Bank of China for public comments. The draft law intends to expand the scope of the RMB, including the digital form of the RMB into the legal tender. The issuance and circulation of digital RMB also involves other legal issues, such as anti-money laundering, anti-terrorist financing, data protection, network security etc. If the digital yuan moves across borders in the future, there will be more problems involved. These problems need to be solved not only through technical solutions, but also from the legal system to regulate.”