China’s plans to launch DC/EP are being driven by ambition to become of the international monetary system in the future
The Central Bank of China is making significant efforts to implement digital Yuan – DC/EP. In it, trials were conducted in the pilot cities. Elsewhere, the European Central Bank said last week it would begin to explore the pros and cons of pursuing the digital currency. Swedish bank Riksbank has also been testing its e-krona for the past several months. Where will this war go?
China is going a long way in the process of implementing digital currencies DC/EP
China’s Digital Currency Electronic Payment (DC/EP) system is being tested in cities of economic significance such as Suzhou, Chengdu, Xiongan, and Shenzhen, as well as at future Winter Olympics locations, with the list of participants is expanding.
Beijing’s enthusiasm for a sovereign digital currency was initially prompted by the rapid digitization of the country’s commercial transactions – led by Ant Financial’s Alipay and Tencent’s WeChat Pay mobile apps – and the extraordinary rise of cryptocurrencies such as bitcoin. However, it is increasingly being driven by Beijing’s ambition to prepare for what may become the future of the international monetary system, amid decoupling threats and potential financial sanctions from the United States.
Furthermore, the representative from the Chinese government also said:
“Our lead in digital currency research would mean pre-emptive opportunities in international markets, and it could also facilitate regional cooperation.”
The Central Bank of China, the People’s Bank of China (PBOC), will issue DC/EP to commercial banks, which will then make money available to individuals through their e-wallet accounts. While the exact technical approach and privacy settings are not yet straightforward, it is primarily designed to replace cash in retail transactions.
PBOC Governor Yi Gang has so far declined to disclose any timetable for DC/EP rollout.
However, its launch has become a hot topic in the country due to concerns that Washington may seek to deny Chinese financial institutions access to the Clearing House International Settlement System (Chips), a US-based system for significant financial transactions; as well as the Global Interbank Financial Telecommunication Association (Swift), the Belgian-based payment information system as the basis for global financial transactions.
It is expected that the digital currency will facilitate the overseas use of the yuan, and thus reduce dependence on the US dollar.
The Swiss-based Bank for International Settlements proposed in a recent report that DCEP could potentially be used to bill foreign parties in renminbi.
Wang Yongli, former vice president of Bank of China, said:
“China should expand the implementation of its digital currency and make it an open-source system in which all individuals and institutions can open a basic account. Otherwise, it won’t have a real advantage over other central bank digital currencies, nor attract the participation of overseas users in yuan internationalization. ”
Beijing is currently taking a conservative walled garden approach in early trials, with selected financial institutions, payment service providers, and businesses involved.
Europe had fallen behind in the race to dominate payments on a global scale
China is not alone in seeing digital money from a strategic competitive perspective.
Christine Lagarde, President of the European Central Bank, warned last week that Europe has lagged in the race to dominate payments on a global scale.
She said during a Deutsche Bundesbank online conference on banking and payments in the digital world:
“We are seeing an increase in protectionist policies as sanctions and even exclusion from payment systems in recent years have shown. This presents new risks of payment disruption – especially for variations that are overdependent on dominant system providers.”
Lagarde said a European System task force is currently exploring the pros and cons of introducing a digital euro for additional cash and will announce its findings in the coming weeks. After that, it was time for community consultation.
The United States Federal Reserve, the Central Bank of Japan, and the Bank of England have also spoken cautiously about the central bank’s idea of adopting a digital currency.
China can be a pioneer in the use of digital currencies in the country and accumulate expertise in technology. Its overseas expansion, however, would face an inevitable test of interest from commercial institutions, as well as suspicion of foreign governments.
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