Earlier in the year, the Chinese state announced the launch of its own digital currency, Digital Currency Electronic Payment (DCEP). The country is positioning the currency as the digital version of the yuan, with China aiming to make DCEP the dominant global currency as it battles territories such as the US for political and economic power. As a UK business with a presence in China, embracing the upcoming rollout of the currency could work in your favour and help you outmanoeuvre other international businesses vying for brand recognition and sales. Below, we’ve put together five things you need to know about the currency below…
It’s not a cryptocurrency
Although China hopes to compete against currencies like Bitcoin with the launch of DCEP, it’s important to note that the currency is not a cryptocurrency. Instead, it will be issued and managed by the Central Bank and is a statutory version of the physical currency with the same exchange rate and value. The idea is for the digital currency to work on top of WeChat Pay and other digital payment mechanisms in the country, rather than replace them entirely.
Many predict that China will become the world’s first cashless society, and though cash is still used, most money in the country is swapped from credit cards to bank accounts. The new digital currency is designed to serve as the digital version of banknotes and coins; they will live on smartphones rather than in users’ wallets. For consumers, it offers convenience and speed, and for authorities, it offers greater control over their economy and currencies.
Already used millions of times
China announced a pilot of its digital currency back in August, and just two months later, DCEP had been used in more than 3 million transactions, with consumers spending more than 1.1 billion yuan. More than 122,000 digital wallets were created in the first month alone, and more than 6,700 use cases have been reported, from travelling around the city to paying bills to buying a house. The People’s Bank of China (PBOC) has been trailing the currency in Greater Bay Area as well as Beijing, Xiongan, Tianjin, and Hebei, giving away more than $1 million in virtual currency to 50,000 “beta testers”. Many hundreds of millions more have been spent inside the DCEP ecosystem since its launch, and further rollouts are expected.
According to the PBOC, consumers have been using the DCEP scheme via bar codes, tap and go transactions, and through facial recognition technologies. As of yet, DCEP has not been introduced to apps such as WeChat or AliPay, so data on digital adoption is limited.
It uses blockchain
Similarly to Bitcoin and other digital currencies, DCEP uses blockchain technology to help verify transactions. Blockchain records every transaction made on the network, and users verify new transactions when they occur. In theory, this means that users don’t need a bank account and can store their virtual currency on their phone or in a digital wallet, but it’s not yet known how China plans to roll out the DCEP currency when it does officially launch. It could be that users can “convert” their yuan to the digital alternative currency, receive their salaries in DCEP, or be able to freely swap between using DCEP and yuan from their banks.
There are big benefits for businesses
Don’t be mistaken for thinking that the new digital Chinese currency is just another payment option to add to your Chinese ecommerce store. It offers many benefits for businesses both on the Mainland and internationally. One of those is significantly lower transaction costs - as digital currencies live online, you’ll pay much lower fees to accept it than you would from payment methods like credit cards and WeChat Pay. Another benefit is security; when users trade with you using a digital currency, they can do so anonymously, and you don’t have to worry about chargebacks - the second the currency enters your account, it’s yours, with a clear digital record thanks to blockchain technology. Finally, international businesses can benefit from digital currencies as they don’t have to worry about exchange fees; in fact, one cryptocurrency figurehead suggested DCEP could outperform the US dollar in the future.
There’s no timeline for its launch yet
Though DCEP is an incredibly exciting concept and offers new possibilities for businesses in China, it’s important to note that trials are in their infancy. Some insiders believe that China has been pressured to rush the development of its digital currency to launch before Libra - Facebook’s digital currency - and become a global leader. Other reports suggest that China wants to use its new digital yuan service by the 2022 Winter Olympic Games, so it could be that we’ll see an official rollout next year. In the meantime, businesses should keep an eye on developments and prepare to implement DCEP into their Chinese ecommerce stores.
What are your thoughts on DCEP? Let us know on Twitter at @ZuduDigital and check back to the Zudu China blog for more insights into running a successful business in the country.