China: Will the digital Renminbi replace WeChat Pay, Alipay anytime soon?

“But, we have a question to discuss. Can it [Digital Renminbi] replace Alipay, WeChat Pay, and bank cards as the main electronic payment tool?”

That was the question posed to Li Lihui, former President of the Bank of China, during the 2020 Caijing Annual Meeting about CBDCs. The exec responded that at least for the next ten years, Alipay, WeChat Pay, and credit/debit cards, will remain the main payment tools in China, adding that the digital Renminbi will not replace these payment tools.

However, the former President of the Bank of China did say that the digital Renminbi has certain advantages over some of China’s other payment tools, advantages such as administrative authority and the technical advantage of custodial transactions. The official also pointed out how the digital wallet of the CBDC can be unbound to bank accounts, something that could attract foreign users who want to obtain a digital Renminbi wallet and realize its convenient payment system, without opening an account in the Bank of China.

According to Lihui, the digital Renminbi’s success will depend on whether it eventually replaces WeChat Pay and Alipay as the main payment tools or even cross-border overflows, while perhaps also developing as a global digital currency. 

Lihui did highlight a few associated concerns, however, adding that it could create problems for commercial banks in China such as in a case where the central bank directly absorbs public deposits, something that could weaken the initial credit capacity of commercial banks and fuel a run on digital currency deposits. The official said, 

“Our country has the largest population in the world, and the scale of our payment market is also the largest in the world. When we issue Chinese legal digital currency in such a market, we must ensure the reliability of digital currency tools in such a highly concurrent market. “

If the Chinese central bank adopts a loosely coupled account and digital wallet feature, he said, the CBDC could surpass WeChat Pay and Alipay accounts that are tightly coupled to bank accounts. Lihui also argued that the central bank must adopt an indirect issuance model and maintain a two-tier operation and delivery system. 

Meanwhile, several central banks across the world have already released updates with regard to their own CBDC projects. Early last month, several central banks had issued a report with the BIS, one highlighting the potential for collaborations.

So far, China has been leading the CBDC race. In fact, according to the Governor of the central bank of China, the Digital Renminbi had already been used in over four million transactions totaling more than 2 billion yuan (about $299 million) in its pilot program.