The People’s Bank of China (PBOC) has been developing a state-backed cryptocurrency over the past five years. But unlike decentralized blockchain-based cryptocurrencies, which enable anonymous transfers, China’s cryptocurrency is designed to tighten the government’s grip on its financial system.
The PBOC will initially launch the cryptocurrency on a mobile wallet app, and let users trade their yuan for the digital currency or make payments on the platform. The central bank will also track the origins and destinations of every transaction.
Many industry watchers believe that Facebook‘s (NASDAQ:FB) introduction of Libra pushed the PBOC to accelerate its own cryptocurrency efforts. But unlike Libra — which aims to cut banks out of the loop, simplify cross-border transfers, and become a “global” currency — the digital yuan aims to increase the transparency of all financial transactions.
Many conversations about the digital yuan focus on its comparisons with Libra. However, there are fewer discussions about how this new digital currency could impact Tencent‘s (OTC:TCEHY) WeChat Pay, the country’s top digital payments platform.
Why digital payments matter to Tencent
Tencent’s “WeChat Pay” (or Weixin Pay in China) is actually the mobile extension of an older payments platform called TenPay. Their differences are rooted in Tencent’s two core social platforms: QQ, its older social platform which originated on PCs, and WeChat (Weixin), its newer messaging platform for mobile devices. QQ still serves 731 million monthly active users (MAUs), but WeChat has a broader reach of 1.15 billion MAUs.
Tencent launched TenPay as a payments service for QQ in 2005. Tencent integrated TenPay into WeChat in 2012, and that mobile extension evolved into WeChat Pay. Tencent…