Opinion: China may develop official digital currency on WeChat

If China were to consider developing an official cryptocurrency, there is no better platform than WeChat.

The Libra project developed by Facebook has provided inspiration to China’s cryptocurrency policymakers. If Facebook launches its own virtual currency for users to conduct transactions on its platform, will one of China’s largest digital payment operators do the same?

The South China Morning Post reported on Monday that China's central bank has begun considering developing an officially sanctioned cryptocurrency for the first time since it banned virtual currencies two years ago. And there is no better social vehicle for them than WeChat, a social media platform owned by Tencent that doubles as a basic messaging app and a digital payment system.

Relevant parties are concerned that Facebook's Libra may pose a challenge to China's cross-border payments, monetary policy and financial sovereignty.

“If Libra is widely promoted globally ... can it function like a real currency and thus have a significant impact on monetary policy, financial stability and the international monetary system?” Wang Xin, director of the research bureau of the People’s Bank of China, asked at a conference at the Digital Finance Research Center of Peking University.

Facebook released a white paper in June about its blockchain-based payment system and crypto project.

WeChat has 1.1 billion monthly active users worldwide, and social media companies tend to use WeChat because it better showcases the active users on the platform.

By comparison, Facebook has 2.3 billion users, twice as many as WeChat; that means many people are likely to use the company’s rather than a state-issued physical currency.

WeChat already has its own payment system, but its transactions only support RMB and Chinese bank accounts. Tencent's WeChat payment service, launched in 2013, has more than 900 million users, according to the company.

WeChat Pay usage is growing strongly in China as well as overseas, but is mainly used by Chinese expatriates and travelers. While WeChat has a platform similar to Facebook, Alibaba's Alipay is its biggest competitor, with the two having almost equal market share in China.

Alipay is part of Ant Financial, the financial arm of Alibaba Group, the world's largest private fintech company.

However, the People’s Bank of China appeared to be in communication with WeChat developers in May, and they even planned to follow Facebook’s Libra project until domestic regulators can better manage the circulation of virtual currencies.

Facebook has opened Pandora’s box in China. It is not clear whether Tencent was forced to ban the use of cryptocurrency on WeChat or the developers themselves did not want to touch the currency. It is hard to believe that WeChat, which copied the American social media model, will be as smooth as Libra.

The same concern applies to Alipay, which has a significant market share in Japan.

Facebook's past efforts to develop payment systems have been quite unsuccessful, but their cryptocurrency project is another matter, and some people have begun to see it as a virtual version of WeChat Pay and Alipay.

Like WeChat Pay, Libra will have capabilities for person-to-person remittances, as well as online and in-store payments. Their payment capabilities are embedded in mainstream social media platforms with billions of customers.

Like WeChat Pay, Libra can integrate payment functions into the entire system through advertising, entertainment, social media, and e-commerce. Through payment transactions and financial data, developers can mine more value from it and expand the payment system to other industries more quickly.

The main difference between the two is that WeChat Pay is based on the Chinese yuan, while Libra plans to develop cross-border payment capabilities, making it more like Visa and Mastercard (which have partnered with Facebook).

WeChat Pay has a payment license, but we have not yet learned whether other Internet companies can obtain the same authority in different countries and regions.

This means that China can take its time deciding whether to embark on developing its own cryptocurrency, and Libra may not benefit from the process, at least not in a way that threatens Tencent’s expansion across Asia.

“Libra is unlikely to succeed because the obstacles it faces are overwhelming,” said Meng Liu, a Beijing-based analyst at Forrester. He cited obstacles Libra faces including existing electronic payment technologies that he considers “sufficiently sophisticated,” including Alipay and WeChat Pay.

But this analysis does not sound credible.

Assuming that the use of cryptocurrency is like a coupon, the holder can buy and sell at a preferential price of nationally issued currency, this policy sounds very attractive.

Meanwhile, China appears to be working on reforming its research on how to regulate a state-sanctioned cryptocurrency so they will be prepared when Libra launches.

“Facebook is trying to do this, and it’s very ambitious,” said Will Martino, founder and CEO of Kadena, a company working on a distributed blockchain platform for the public and enterprise. “It all sounds unworkable to me. It seems like they’re trying to declare themselves a sovereign nation with their own currency… It’s crazy.”

Source: Forbes

By Kenneth Rapoza

This article has been partially edited. Translated by Chloe and edited by Li Yongqiang