China Cracks Down On Ant, Looks Toward Its Own Digital Currency

James Jackson

Sometime in 2021, China will shift to a digital currency. In ten years, the society will move from a cash-based economy to strictly digital.

That has ramifications for Chinese citizens and those countries that have extensive trade agreements or investments with China. In essence, they are going to be signing over their economy if they choose the Digital Currency Electronic Payment (DCEP).

The DCEP is issued by the People’s Bank, and trials have been underway for at least the last year. The Chinese government is banking on digital currency to help it increase its control of that nation and staunch any outflow of capital, a major issue for China’s economy.

But the aim is also to lessen the control now enjoyed by giant Fintech companies like Ant Financial’s Alipay and WeChat, the online arm of Tencent Holdings.

This week, Chinese regulators stepped up the pressure on the Ant Group. An anti-monopoly investigation was started against Alibaba, the e-commerce arm of Ant. Its Alipay system is used for its online shopping sites, but has also branched out into loans, investments and insurance products. Its successful inroads in those areas are crucial to Ant’s plans for a public offering, but Chinese authorities have cast a wary eye on how that system bypasses the central authority.

Officials have met with Ant and indicated that the current balkanization of its 730 million users cannot stand. It’s not the first time the regulators and Ant have butted heads. Previously, a money-market fund within Alipay that paid higher rates than bank deposits was curtailed. It also made Alipay divert customer funds in virtual wallets to special accounts that could be more closely monitored.

All of this is a prelude to the introduction of the DCEP in 2021. Look for the screws to be tightened even further on alternative payment systems as the government-controlled digital payments are installed.

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