By Ashley Galina Dudarenok China was one of the first countries to contain the COVID-19 epidemic with relative success, and the economy is better for it. The National Statistics Bureau reported 4.9% growth in China’s Q3 GDP year-on-year, showing improvement against both its 3.2% growth in Q2, and [...]
China has not announced an official launch date for its Central Bank Digital Currency, although its development is “basically completed”
The Digital Currency Research Institute of the People’s Bank of China (PBOC), China’s Central Bank, has entered into a strategic partnership with DiDi Chuxing, the dominant ride-hailing giant in China, to jointly study and explore the innovation and application of digital RMB in the field of smart travel, DiDi announced in a press release yesterday.
This cooperation will make DiDi one of the first corporate users of a government-created digital currency, which could potentially challenge Bitcoin and even the U.S. Dollar, according to Reuters. Less than 3 months ago, Didi raised over US$500 million for its autonomous driving subsidiary.
Jumpstart had first reported about China developing its own digital fiat currencies in April 2020.
The two parties are collaborating to implement digital currency electronic payment (DCEP) on DiDi’s ride-hailing app, according to the statement. PBOC and DiDi will leverage each other’s strengths to promote construction of the digital ecological platform in a diversified travel scenario.
PBOC inaugurated the Digital Currency Research Institute in 2017, and set up a research team that focused on developing a digital currency to reduce the cost of fiat-currency distribution and allow policymakers more control over the supply of money.
The PBOC has been carrying out tests of its digital currency in different sectors since May—it launched a trial of the digital yuan in four major cities in China, with a focus on food and retail in Xiong’an and to subsidize transport for public sector workers in Suzhou, The Economic Times reported.
The country will also launch pilot programs for trails of its digital currency at the venues for the 2022 Winter Olympics in Beijing.
The global pandemic may accelerate the launch of digital currency in the country as people grow weary of physical currency that can spread the virus, Yang Dong, Head of the Financial Technology and Blockchain Research Center, part of the Law and Technology Institute at the Renmin University of China in Beijing, told China Daily in an earlier interview.
In late May, South China Morning Post reported that China does not have a formal timeline for the official launch of its DCEP system, although media reports indicate that the digital yuan may be launched as early as this year.
In the report, PBOC chief Yi Gang had said that the design, standard setting and research on functions, and integration tests of the digital currency was “basically completed.”
According to Chinese investment bank Citic Securities, the total size of China’s digital fiat currency could reach RMB 1 trillion (US$140 billion) over the coming years—the amount represents one-eighth of China’s cash.
In context, the total market capitalization of cryptocurrencies, including bitcoin, is around $200 billion.
Leveraging the transparency offered by blockchain technology, China’s digital currency is stable in value compared to traditional cryptocurrencies, as it falls under the purview of China’s Central Bank.
When the DECP system is launched, consumers would be able to download an electronic wallet application authorized by PBOC,. This can be linked to a bank card to start paying out or receiving digital yuan using a mobile phone, or to make transfers with an ATM machine.
The money from the linked bank account would be converted into digital cash on a 1-to-1 basis.
The digital economy has become an important driver of China’s economy, and the legal digital currency system will become an important infrastructure in the development of the digital economy, the press report says.
DiDi Chuxing, which currently serves a total of more than 550 million users, said that it will cooperate with the PBOC Digital Currency Research Institute to strictly implement the guidelines proposed by the Party Central Committee and the State Council, to promote the integrated development of the digital economy along with the Chinese economy.
“Under PBoC’s overall DCEP strategy and operation timeline, DiDi’s DCEP taskforce will design and implement pilot DCEP projects in accordance with rigorous safety, security and governance standards,” the firm told Coindesk.
“The partnership is a key milestone in DiDi’s ongoing initiatives to enhance the interconnectivity of online and offline economic sectors in China, as the government seeks to support the development of the real economy sectors with innovative financial services,” it added.
Header image courtesy of DiDi Chuxing