A few weeks ago, the idea of the "Digital Dollar", generated mainstream media attention in the United States. This digital ledger was supposed to help distribute government payments to U.S. citizens. However, as President Trump was signing the bill for the largest stimulus package in history, the digital dollar ended up not being included in the bill; An unexpected outcome, given that digitizing the dollar has been seen by many influential figures as a necessity to retain some sort of financial edge on it by the reserve bank.
While the U.S. is still in the research and experimentation phase of its digital dollar, China is turning a crisis into an opportunity. According to a Global Times report, China is getting steps closer to issuing its Central Bank Digital Currency (CBDC). China, in collaboration with private companies such as Huawei, Tencent (WeChat), Alibaba (Alipay), and China Merchant Bank, has completed the development of the sovereign digital currency's basic functions and is now drafting laws for its #CBDC's circulation.
In this scenario, we can anticipate the rise of a very unusual new banking system. It will not only be the licensed operating banks that will manage the CBDC, but also companies that may have little to no banking activities but have their primary course of business as chat applications (WeChat), eCommerce (Alibaba), or operating some sort of technology infrastructure. Those companies will be in charge of managing and distributing China's digital currency as it flows around the system. Alibaba's Alipay and Tencent's WeChat-Pay together represent more than 1.7billion active accounts across China. They have created an advanced online commercial infrastructure by blending social media, eCommerce, and payments. As the #COVID-19 pandemic spread across the world, China has one less issue to worry about; which is the spread of the virus through cash. What about the rest of the world?
It is important to analyze the payment landscape; Hundreds of millions of people around the world do not have bank accounts. Most people from the lower class, work paychecks to paychecks, and cash their checks for physical notes and coins. But there are more phones on the planet than people. Almost everyone has a phone. As the pandemic grows, we might notice a shift in consumer demand, for payments and the way items are purchased, as cash might be a vector for the virus to spread. We may see a spur in demand for digital methods of payment (i.e. Mobile pay). The more digital we are, the less likely we are to come into physical contact, thus spreading the virus. This could be used as an opportunity to limit cash transactions. Although cash is very well-liked by the elderly and a number of people in the informal market, it has, on the other hand, many drawbacks. Firstly, cash has been seen to be challenging for the tax man, secondly, carrying big amounts around can be risky (especially for money transfer trucks), thirdly is can be used for criminal activities with no traceability.
As China dominates the international economic development game, let's keep an open eye for future developments of CBDCs around the world.