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Use case for a CBDC in China ‘pretty weak’ says professor of Economics at Cornell University

Use case for a CBDC in China ‘pretty weak’ says professor of Economics at Cornell University
Jordan Major

With the growing number of private digital payment providers throughout the globe, China is becoming increasingly concerned about the possibility of a market being controlled by two large participants and the political and economic sway this would give them in the country.

Speaking to CNBC news, professor of international trade and economics Eswar Prasad of Cornell University revealed the People’s Bank of China (PBOC) wants a digital currency to ensure that the payments sector is not controlled by just two powerful firms. 

However, professor Prasad, feels that the use case for a CBDC in China is ‘pretty weak, on the matter he stated:

“The PBOC wants to make sure that a digital version of Yuan is relevant in terms of making sure central bank money remains attractable at the retail level and also to make sure that payment space is not dominated by two major payment providers. But the use case for a CBDC is actually pretty weak in China.”

CBDC necessary to level playing field

When it comes to facilitating digital payments, there is some worry that these two big payment providers have gained a disproportionate amount of market share, even if there is no actual  need for a central bank digital currency (CBDC) on a technical level.

Questioned on why China is aggressively pushing for a CBDC if the actual use case is pretty weak, the professor declared:

“I think the reality is that you have very little competition in that space because of these two big providers is worrying. Its also worrying for the Chinese government because these two companies and the conglomerates that sit behind them control massive troves off data which until recently they were reluctant to share with the government.”

On this note he added:

“China is trying to provide a level playing field where new payment providers can continue to enter and provide new innovations. That might be one motivation for the PBOC for setting up a CBDC not to directly compete with the payment providers but to provide a payments infrastructure and interoperability for others wanting to use that network.”

Notably, China’s central bank has been supervising financial platforms heavily since July and August to check that they comply with regulations and taking steps to prevent major financial risks and lower the number of high-risk financial institutions in key provinces. 

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