Chinese Economics Thread


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Beijing will build a legal digital currency pilot zone and a digital financial system, relying on the People's Bank of China's trade and finance blockchain platform to form a trade and finance blockchain standard system.
The overall plan for the China (Beijing) Pilot Free Trade Zone announced on September 21 mentions these, and says it supports the PBOC's Digital Currency Institute in setting up a financial technology center.

According to the 21st Century Business Herald, digital RMB has already begun to test "credit card repayment" as a traffic entry-level scenario, in addition to transferring funds and paying bills.
The digital RMB pilot is still being tested internally in Shenzhen, Suzhou, Xiongan New Area, Chengdu and the future Winter Olympics park.

Shenzhen, Suzhou, Xiongan and Chengdu represent the Guangdong-Hong Kong-Macao Greater Bay Area, the Yangtze River Delta, the Beijing-Tianjin-Hebei region, and the central and western regions of China, where the People's Bank of China is conducting pilot tests of digital RMB.

On Sept. 14, PBOC Vice Governor Fan Yifei wrote in an article that digital RMB is a public product provided by the central bank to the public without interest, and that the central bank does not charge for services such as exchange and circulation, according to the fee structure of M0.

According to M0's distribution model, commercial banks are responsible for exchanging digital RMBs with the public.

In order to ensure the safety and stability of the digital RMB system, commercial banks with strong capital and technical capabilities should be prudently selected as the designated operating agency to provide digital RMB exchange services.

On the premise of centralized management by the central bank, we will strike a balance between stability and innovation, and explore cooperation models between the designated operator and other commercial banks and institutions to jointly provide digital RMB circulation services.
Can anyone explain the difference between this digital currency and the current cashless system in China now? Paying with apps like wepay and alipay.


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Registered Member
Can anyone explain the difference between this digital currency and the current cashless system in China now? Paying with apps like wepay and alipay.

1.) On the customer side no difference. You pay the same thing. Either by DCEP ( electronic RMB) or by apps (alipay, wechat, or whatever).

2.) The major change is the settlement side. You see, all electronic payments needs to be settled between the payor and payee and usually via third party. This settlement process is the final say how much the payee should received from the payor.

As concrete examples

Payor settlement payee
you --->Alipay---> merchant
you --->Paypal--->mechant
you ---> Visa ----> merchant


As we see all of those settlement processors are middleman and usually private.
And just like all middlemen, they add to cost by either inflating the price or getting some bite of the payment.
I myself was involved in some settlement projects before, in my research, the worst of these processors
in terms of payment cut are Paypal, Visa, ..., Octopus (the one I was involved) ... Alipay and wechat pay in decreasing order.

Whereas DCEP (the digital currency) completely get rid of these middlemen.
Of course there some fees to pay like transferring from and to bank account etc.
The middleman in this case is not private but the central bank itself. So this is truly a revolution.
I dont know exactly how is this done technically because this really requires a massive
computing resources if ever truly fully implemented replacing cash. And it should work even if there
is no internet connection to central bank servers.

DCEP model
you -->central bank --> merchant

3.) This gets interesting in cross border payments.
Normally when you pay cross border overseas payment, particularly large transactions is done bank to bank.

your bank -->middleman here --->receiving bank account

And this middleman happens to be overwhelmingly SWIFT.
You can do some research about this, in short, if you pay in US dollars,
the routing instruction will eventually go through US financial system.
And yes US can block these payment instructions.

All financial sanctions we hear daily from US particularly applied to Iran and Venezuela and recently
Chinese companies are basically cutoff with this payment system.

So if those China major trading partners starts to accept DCEP,
it accomplish two things: it will increase the usage of RMB and get rid altogether with that
SWIFT settlement and circumvent all those payment restrictions.

And you just need an internet connection to pay via DCEP.
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Registered Member
China has UnionPay. Even outside China a lot of ATMs support it.
From what I understand the new system is to support micro-transactions i.e. to eliminate physical cash transactions. So it competes with things like Alipay or Wechat pay.


Junior Member
Registered Member
It is not in competition with Alipay/Wechat pay, both will be major distributors of said DC/EP.

There might be some truth to it. The DCEP is not designed to be a competition of Alipay/Wechat pay but actually
designed to curb the financial power these two behemoths it hold. Just think about this data.
In 2019, the growth rate of mobile payments in China is 25% and is nowhere to peak.
Now the settlement fee for both Alipay and Wechat pay is around 0.6%. If we do the math,
from 2013 to 2019, the total money paid for settlement alone is 6.75T yuan (T as in trillion)
divided between Alipay, Wechat pay and other small players.

Imagine if this trend is to continue for the next 10, 20 years, China is essentially giving that humungous amount of money to private entities. Thats why Jack Ma, is somewhere in the beach now counting the zeros of his money.
This is just a natural evolution of how to control money particularly in China where the scale is so vast.

The DCEP effectively hit many strategic birds with one stone
1.) curb the financial powers of Alipay, Wechat pay etc
2.) potential to circumvent the SWIFT payment processing
3.) government will have real time information of money flow in circulation
4.) This will also has a potential to collect tax in real time
5.) replace physical cash. this further decrease the cost of printing bills and and minting coins.

Only an army of strategists can think about the implications of this.

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