China’s Tencent, the operator of the WeChat and WeChat Pay platforms, is set to join the central bank-led digital yuan and CBDC interoperability pilots. Currently, WeChatPay and its rival Alipay have captured approximately 15% of the Chinese payments market. However, Tencent has recently aligned itself with the People’s Bank of China (PBoC) in its CBDC adoption efforts. Tencent will be collaborating with the PBoC’s Digital Currency Research Institute on Project mBridge, also known as the “multilateral central bank digital currency bridge project.” This project involves the participation of the PBoC, the Bank for International Settlements (BIS), as well as the central banks of Hong Kong and the United Arab Emirates.
The mBridge platform conducted “real-value transactions” between 20 commercial banks in four territories in 2022. This multinational effort aims to explore CBDC interoperability and bridge the gap between different digital currencies. Tencent began working with the PBoC on CBDC technology back in 2018, indicating its early interest in the digital currency space. However, it is worth noting that WeChat Pay and the PBoC’s digital yuan will likely compete with each other in the payment sphere, as WeChat Pay and Alipay are already widely used, whereas the digital yuan represents a smaller fraction of the Chinese payments market.
Nevertheless, the PBoC has emphasized that the digital yuan and private-sector alternatives like WeChat Pay will eventually complement each other. In early 2021, WeChat Pay introduced electronic payment-CBDC interoperability options to its platform. Subsequently, in March of the same year, a PBoC update allowed Tencent users to make WeChat Pay payments from the bank’s official app. In April, Tencent updated its own apps to enable users to make e-CNY payments from various WeChat platforms, including mini-programs, applets, and video accounts.
By joining the mBridge project, Tencent aims to enhance its cross-border payment service capabilities. The company also plans to explore opportunities for multi-currency fund management for small and medium-sized enterprises. This demonstrates Tencent’s commitment to leveraging CBDC technology for financial innovation and expanding its services in the digital payments landscape.
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The PBoC has recently been placing greater emphasis on CBDC interoperability and cross-border use cases for the digital yuan. For instance, the bank has updated its app to allow overseas visitors to open digital yuan wallets on their mobile devices, coinciding with the Asian Games held in Hangzhou. Additionally, the PBoC is conducting cross-border trials with Hong Kong and Macau, showcasing the potential for international use of the digital yuan. The concept of interoperability extends beyond China, with Russian politicians proposing compatibility between the digital ruble and the PBoC’s coin.
In parallel, the Bank for International Settlements (BIS) has also been working on CBDC interoperability solutions in collaboration with central banks and private sector financial firms. The aim is to establish a framework that enables seamless transactions between different digital currencies and facilitates cross-border payments.
As Tencent becomes one of the first private-sector firms to join the mBridge project, it paves the way for other Chinese tech giants to join in the future. This signifies the growing interest and recognition of CBDCs among private companies, with the potential to drive further innovation in the digital payments landscape. The mBridge project, along with other initiatives focused on CBDC interoperability, aims to create a cohesive and interconnected global financial system that leverages the benefits of digital currencies while ensuring seamless integration with existing payment infrastructures.
In conclusion, Tencent’s decision to join the PBoC’s mBridge project highlights its commitment to exploring opportunities presented by CBDC technology and further integrating digital yuan capabilities into its platforms. As China continues to push forward with the adoption of the digital yuan, collaboration between private companies and central banks through initiatives like mBridge will play a crucial role in realizing the full potential of CBDCs and driving innovation in the global financial landscape.
