The Chinese government is focused on launching its Digital Currency/Electronic Payment (DCEP) system, commonly known as “digital yuan”, as China’s central bank pushed a new round of trials across Beijing, Suzhou and Shenzhen.
DC/EP’s journey began in late 2018 when Chinese President Xi Jinping gave a “green light” on blockchain development and research. The initial infrastructure design, as well as the basic functionalities of the DC/EP stablecoin were completed in 2019. After several pilot programs, China is now almost ready to release DC/EP to the broad public.
The so-called “digital yuan” can be realized as both transfer point-to-point exchange, utilizing digital wallets instead of bank accounts. However, with Tencent’s WeChat Pay and Alibaba’s Alipay currently leading the online payment sector in China, DC/EP may become a rival to those entities.
Meanwhile, PBoC is expanding trials, which means the Chinese state would step up the implementation and promotion of the DCEP across the country.
One of the biggest news about the “digital yuan” is the cooperation of DC/EP with the global system for financial messaging and cross-border payments, SWIFT. The dubbed “Finance Gateway Information Services Co” would be a joint venture between SWIFT and the Chinese central bank's digital currency research institute and clearing center.
The joint venture is beneficial for both sides, as SWIFT would promote technological innovations in the digital currency era. China’s DC/EP provides a perfect use case about cross-border payments and digital currency reform.
The current partnership is also beneficial for the Chinese state, as it would open the doors for cross-border payments in inflow, but it may face issues, which are non-existent in the domestic usage of the “digital yuan”.
SWIFT and China are entering such a partnership amid China’s central bank’s plans for renminbi internationalization and improvement of renminbi cross-border payment infrastructure. Furthermore, the ongoing tech “cold war” between China and the United States may turn out to be an effective way to promote and utilize renminbi cross-border payments. PBoC’s partner, SWIFT, has a global financial message network, connects with more than 11,000 banks, financial institutions, financial market infrastructure and enterprise users, and covers more than 200 countries and regions.