"Didital" currency – coming to China soon!

When you want to pilot a new method of effecting secure payments in your fast-growing services industry, it is always useful to choose a testbed with a large sample size. How does half a billion commuters sound?

This week saw news that China’s Uber-killer, Didi Chuxing, is one of the firms testing the Chinese government’s own digital currency: “Digital Currency Electronic Payment” to the geeks and “DCEP” to its mates.

As we commented in our updated Tech Legal Outlook, Covid-19 really has accelerated digital adoption in financial services. That is no less true in mainland China, where acute memories of the 2003 SARS outbreak brought clear recognition of the hygiene issues of handling cash, and strict early lockdowns stopped a population of 1.4 billion going to their bank branches. A digital currency is the next step for a society where digital payments via Alibaba’s and Tencent’s handy apps are pretty much ubiquitous in everyday life.

According to those diligently inspecting the patents registered by China’s central bank – the PBOC – and the statements given by its officials, the DCEP will allow the public and enterprises to transfer cash from their normal bank accounts to digital wallets on mobiles and other devices, where the funds can be stored and used as digital cash. Kind of like sticking your iPhone in the slot of an ATM to make a paperless withdrawal. Futuristic but simple.

As well as convenience though, in the current geopolitical climate, the move to a centrally-controlled digital currency has strategic importance in the context of China’s desire for greater national security and data sovereignty outside of the clutches of a global banking system so reliant on Wall Street and vulnerable to the whims of Washington’s hawks. Some speculated last year that Facebook’s headline-grabbing Libra project also hastened the Chinese government’s resolve to launch its DCEP first.

First-mover advantage is not always key to the success of emerging technologies – think Betamax vs VHS – and a centralised digital currency has drawbacks in the eyes of purists in terms of freedom-of-use and privacy. Therefore, widespread adoption (particularly internationalisation!) is by no means certain. But, in an age where being first has increased political significance, don’t bet against the PBOC to drive through the launch of its DCEP while the US is still pre-occupied by Covid19 and the frenzy of its November election.

Buckle up and enjoy the ride!