Crypto RMB: Finance Innovation or New Tool for Control?
Editor's note: Central Bank Digital Currency (CBDC) is a hot topic among fintech and banking sectors in recent years. Survey showed that nearly 70% of financial authorities worldwide are interested in CBDCs.
China's plan to launch its own CBDC has been rumored for years, but yet no official timeline has been revealed. Last month, China reached a new milestone by launching an internal pilot program in 4 major cities. There is also leaked photo online, providing a glimpse of the latest development of it's new currency. It is believed that China will launch its "digital RMB" very soon, probably later this year.
Why and how is China going to implement it? What are the implications for global economic impact? Andrew Work, a blockchain and fintech expert, conducted a report for FNFGIHUB, titled "Crypto RMB: Finance Innovation or New Tool for Control?".
Looking longer-term and more speculatively, economies in Asia dependent on Chinese trade could be subject to pressure to adopt the digital yuan for payment and to make payments to Chinese suppliers.
Reports of the Chinese government’s plan, via the People’s Bank of China, to introduce a cryptocurrency, digital currency or some other blockchain form of money, have been leaking out for years. Those pronouncements gained a higher level of confirmation in 2019 as Xi Jinping affirmed a commitment to adopting and dominating the blockchain space and the People’s Bank of China (PBOC) made its intentions, if not plans, more explicit.
Since then, the intentions and timetable for the introduction of some type of digital RMB have been elevated from the level of rumours to the subject hotly debated headlines and official reports - and more rumours.
However, there remains a great deal of ambiguity as to what exactly the PBOC will introduce in 2020 and how it will be used. More controversial is the intention of the PBOC and how its actions will fit into a larger strategic approach to global and regional affairs by the Chinese Communist Party (CCP).
A wide range of motives are attributed to the introduction of a digital currency, ranging from the obvious and benign to the insidious and malignant. They include:
- Internationalisation of the RMB
- A means of payments and clearings for Chinese traveling overseas
- Provide redundancy to the current electronic payment systems in China (particularly WeChat and Alipay)
- Improve visibility of transactions for Anti Money Laundering (AML) and Know Your Customer (KYC) enforcement (i.e. to prevent fraudulent activity)
- Gain some of the seigniorage advantages currently enjoyed by the USA as the issuer of the dominant world currency
- Control monetary policy of regional economies that have widespread adoption of the RMB
- Provide unlimited government visibility into domestic financial transactions
- Integrate the domestic financial transaction record into new domestic surveillance programmes like ‘social credit’ monitoring
- Gain visibility into a wide range of offshore financial transactions
- Undermine the US currency hegemony
- Provide the underpinning for a global financial system that evades American dominance of finance, including unilateral American sanctions
To consider the likelihood of which of these uses a digital currency could be used for in the near future, an understanding of what kind of currency is being proposed, how it would be distributed, who would adopt it at what rate and what resistance it may face must be considered.
Europeans have a special responsibility to consider the implications of this technological innovation for privacy, human rights, the status of the Euro and the dominance of regional or global economic factors by a potential strategic, economic, political or even military rival - or partner.
This report is broken out into four major sections:
Introduction and Background - Understanding the context and details of major factors.
The Proposed Digital Currency - Potential structure, distribution and adoption.
Scenarios for Adoption, by Region - How the digital currency may land in various regions of the globe.
Conclusions- The global economic and monetary implications of a Chinese digital currency.
Download the full report here.
About the Author
Andrew Work is the founder and Editor in Chief of Harbour Times (est. 2014), a publication focussed on Hong Kong policy and politics, and a co-founder and Director of The Lion Rock Institute (est. 2004), Hong Kong’s first and only economic think tank focused on providing free market solutions to Hong Kong issues.
Mr. Work is also the former Managing Director, Head of Media, Asia and Europe at NexChange Group, a digital merchant bank focussed on cryptocurrency finance and blockchain investment. It is the creator of the Fintech O2O (with Cyberport), Healthtech O2O, and Block O2O brands and events. He played a leading role in commenting on fintech and blockchain issues and was the lead on-stage host for many world leading blockchain and fintech events.
This article first appeared on FNF Global Innovation Hub.