According to a Bloomberg report, officials at numerous government departments, Treasury, State Department, Pentagon and National Security Council, are getting up to speed on a digital yuan central bank digital currency’s (CBDC) possible implications.
“American officials are less worried about an immediate challenge to the current structure of the global financial system, but are eager to understand how the digital yuan will be distributed, and whether it could also be used to work around U.S. sanctions, the people said on the condition of anonymity,” said the Bloomberg report.
Payment messaging system SWIFT has effectively become a tool to impose sanctions. Hence the desire by countries such as China and Russia to reduce dependence on it.
Moving on from the Bloomberg report, China already has its own cross border payment system CIPS, although it is currently reliant on SWIFT for messaging. However, it could potentially integrate the digital yuan.
Domestic or international plans?
China’s stated aims for its digital currency are primarily domestic. Although pundits in the U.S. and China believe it’s part of a geo-political big picture.
At a Bank for International Settlements (BIS) conference last month, the leader of the digital yuan project, Mu Changchun, outlined three motivations. The first is to quell crypto-asset trading and preserve monetary sovereignty. For many central banks, the Diem (Libra) global stablecoin project was a big wake-up call.
Providing resiliency in retail payments was the second stated aim, with Alipay and WeChat Pay dominating digital payments. A CBDC will provide redundancy if something happened with these private payment systems, and a digital yuan also makes these two wallets and others interoperable.
The third purpose is to create a more efficient 24/7 payment system that is government controlled but integrated with the private sector.
Nonetheless, at the same event, Mu Changchun made a major announcement. He wants to establish some international ground rules for cross border payments using central bank digital currencies. Potentially CBDC’s from other countries could also be a threat to China.
Geopolitics and the digital yuan
In 2019 Ledger Insights explored the potential for a digital yuan to be used in China’s Belt and Road initiative.
Around the same time, Facebook’s David Marcus spoke about the digital yuan. “I think their goal is not domestic. It’s really broad and it has the objective of rewiring the financial networks of a lot of countries with digital assets that they control. I think you’ll see a lot of projects that will have a more disruptive mindset,” said Marcus.
Even China’s blockchain thinktank Zero One had similar views. “The fundamental purpose of CBDC is to promote the internationalization of the RMB, especially in the “One Belt, One Road” policy environment, to improve the convenience of RMB cross-border payment, and to enhance the RMB as a tool for international trade pricing and payment settlement, and to enhance the status of the RMB as a value storage and reserve currency.”