China’s growing digital currency efforts have caught the world’s attention because of the many ripple effects that will follow in the project’s wake.
Now, one of the most influential economic figures the nation’s ever had has made their first comments on the topic, having publicly waxed on the style of how the digital yuan will be implemented.
That banker, Zhou Xiaochuan, rose to fame as the governor of the People’s Bank of China (PBoC) from 2002 to 2018, a span wherein the Chinese economy notably swelled to being the second biggest in the world.
Zhou, who currently serves as president of the China Society for Finance and Banking, offered his new digital yuan remarks at the Caixin Hengqin Forum on November 26th.
Echoing recent comments from PBoC Digital Currency Research Lab director Mu Changchun, the former central banker Zhou hailed a country’s currency as a key element of its national sovereignty, and thus great care must be taken in developing the digital yuan lest a monetary crisis later occur.
On the point of the project’s development, Zhou said PBoC’s builders had two routes, namely in building a digital currency designed as a payment rail for retail contexts or as a system for international transfers to settle institutional payments and remittances. Zhou said the digital yuan was being built in line with the retail vision, i.e. money everyday Chinese citizens can use in their daily affairs.
Though the matter is likely not that simple, of course.
First Retail and Then Beyond?
According to Dovey Wan, a founding partner of Primitive Ventures, this retail-focused style is in line with what we already know about the in-progress digital yuan, i.e. that PBoC will create it, Chinese banks will distribute it, and Chinese citizens will be able to pay with it using popular domestic payment rails like Alipay and WeChat.
Zooming out further, Wan noted that it seemed entirely possible the PBoC was using retail payments as a sort of Trojan Horse maneuver to gain traction for the digital yuan before expanding it toward international, non-retail settlements as well. On Twitter, Wan wrote:
“Since WeChat/Alipay is already global, especially in pan Asia thanks to massive Chinese tourists overseas, using it as a Trojan [Horse] to switch on the international remittance in the future is inevitable … The current take is a typical ‘land and expand’ strategy.”
In a separate but similar analysis, Nirvana Capital’s Mable Jiang also speculated that foreign settlements would eventually be on the table for the digital yuan, perhaps in the context of China’s massive and ongoing “One Belt One Road” global development project.
This statement is definitely open to many kinds of interpretation. To me it feels natural to tie that with the strategy on One Belt One Road and pushing RMB as the daily settlement currency in foreign countries.
Of course this is nothing official, just my own reading.
— Mable Jiang | We're Hiring! (@Mable_Jiang) November 26, 2019
Whatever ends up happening with the central bank digital currency (CBDC), it seems likely China’s leadership has this tech on the brain in the context of international trade settlements.
Earlier this month, the BRICS nations of China, Russia, India, Brazil, and South Africa discussed creating a shared digital currency that the countries could use for trade settlements, with a mind toward moving away from the tall specter of the U.S. dollar.
No specifics came out of those preliminary discussions, so nothing is settled for now. On the speculative front, it would be interesting if the BRICS shared currency talks fizzled out while China brings the digital yuan to the market. Would the BRICS nations consider adopting the digital yuan, even in limited fashion, instead?
On the one hand, these countries would surely prefer a shared currency or one controlled by themselves and China. On the other hand, these countries’ desires to move away from the U.S. and toward China economically may outweigh other related anxieties.
In this light, there are already some conditions forming globally that could pave the way for the digital yuan being adopted beyond just retail purposes.