Heng Wang and Ross P. Buckley of the University of New South Wales, in a paper for a forthcoming edition of the Singapore Journal of Legal Studies, bring us up to date on China’s progress with their Central Bank Digital Currency (CBDC) or as it’s mostly now referred to the e-CNY.
If the subject is new to you the paper is an easy read and covers most of the talking points. However, if you’re familiar with China and other global Central Bank’s efforts in this direction you’ll find little that’s really fresh.
To summarize the paper briefly:
- China began to develop their CBDC as far back as 2014 and are regarded as the world leader in the area.
- A key reason to pursue this initiative is that it can promote financial inclusion for the rural poor and other un-banked constituencies.
- Widespread adoption would make the combating of fraud, money laundering, terrorist financing and tax avoidance easier.
- China’s fintech sector is currently a patchwork of various works-in-progress. An e-CNY would facilitate easier government control.
- More accurate and faster transactional data would be made available to the government assisting planners and policy makers.
- With better data monetary policy could be more finely tailored and potentially be implemented in some cases regionally.
- As China seeks to advance the use of the renminbi in international trade the e-CNY could streamline the process.
- China will pursue a so-called ‘two-tier’ system of e-CNY introduction. This means banks and other approved intermediaries will be involved.
As solid as the work here is it could have been written five or even seven year’s ago. The real question is why the introduction of this ‘new money’ hasn’t been progressed with more alacrity, by China or anywhere else for that matter [The U.S. and the U.K. are notably tepid on the subject]?
I suspect the answer is this is a solution looking for a problem. Crooks have moved on to crypto so you won’t net them even if you go full-throttle into a CBDC. As far as the other issues are concerned they’re mostly structural that can be worked out and don’t need another payment system to facilitate this.
The real Achilles-heel in China’s case is their insistence on the two-tier system which will require banks (mostly) to do the heavy lifting in terms of managing the customer interface, dealing with issuance, digital wallet maintenance and etcetera. These obligations add up to an increased and profitless administrative burden they’re obviously not keen to acquire.
Maybe a digital yuan will catch on and, in time, could begin to undermine the hegemony the U.S. dollar? It’s fun to speculate but I see no sign of this becoming a reality in the next decade. However, the possibility isn’t zero so it’d be prudent to stay informed and keep an open mind.
You can read the paper in full by following this link E-CNY
Happy Sunday.