According to a recent article posted by South China Morning Post, The People's Bank of China, which is on the verge of launching its own digital coin, will allow the country’s commercial banks to act as fiat-to-crypto conversion agents.
In such a way, they will take the power back from the country’s omnipresent third-party payment apps, such as AliPay and WeChat.
Bringing the money back to banks
PBOC depositors hope that the new digital currency will encourage retail depositors to ditch their mobile payment accounts. That would favor commercial banks that are suffering from the rising loan-deposit ratio (it has already surpassed 72.85 percent in 2019).
With banks’ loan-to-deposit ratio rising, if banks continue to lose their deposit base it will be difficult for them to keep up with their lending, so through the digital currency the PBOC hopes to divert some of the deposits back to the banking system - said DBS Group Research analyst Cindy Wang Wang.
According to professor Hui Kai-lung, commercial banks are also competing with third-party payment applications when it comes to capturing big data, which is valuable for analyzing customer’s online behavior.
Libra shaking up China
The PBOC-backed digital currency has been allegedly in the making since 2014, but it decided to take swift actions after the launch of Facebook’s Libra cryptocurrency. China’s central bank earlier expressed its concerns about Libra, claiming that the coin could impinge on the country’s financial sovereignty.
On top of that, Libra itself also appeared to be a serious competitor to Alipay and WeChat.
However, unlike Libra, the PBOC coin will reportedly not rely on Blockchain, which hardly makes it a cryptocurrency.