1/21/2023 0 Comments Cips cny swift share![]() Economic theory suggest that frictions cause agents to use a specific national currency as international mediums and the economy of scale leads to concentrate on only a few national currencies for this purpose. The e-CNY could indeed potentially provide a simplified method for cross-border yuan-denominated settlements, reducing costs and political risks associated with US dollar intermediation.ĭigital networks and multi-CBDC arrangements could indeed ease the internationalisation of a currency as a mean of payment trough trade links. This scenario has alarmed many in the US who note that a digital yuan could be a national security issue, while others have highlighted its challenge to any further internationalisation of the euro. This could allow to bypass the SWIFT intermediary node – if enough countries accept international payments in digital yuan – and, ultimately, defuse the reach and effectiveness of US primary and secondary sanctions. Īfter having failed to establish an alternative to the western-centric Society for Worldwide Interbank Financial Telecommunication (SWIFT) with the Cross-Border Inter-Bank Payments System (CIPS), multi-CBDC arrangements could allow China to circumvent the current system. Source: Author’s elaboration from Statista, Distribution of Currencies Worldwide in 2020, Based on Their Transaction Value. įigure 2 | Distribution of currencies in 2020 As noted in a recent report from the Bank of China, Beijing should strategically reduce its exposure to the US dollar in view of a scenario in which the US could cut off access to dollar settlements for certain Chinese banks as retaliation for the deterioration of US–China relations. Compared to China’s economic power, the yuan significantly underperforms as an international currency, making Beijing highly depended on the US dollar for global trade and investment.įor example, in January 2021, only 2.42 per cent of the total value of global payments were made in yuan. The domestic use of a CBDC is however just one piece of a broader puzzle.įor the Chinese government, the e-CNY has the potential to pursue Beijing’s ambition to further internationalise its currency. Source: Author’s elaboration from McKinsey, The 2020 McKinsey Global Payment Report, October 2020. ![]() Furthermore, the e-CNY could undermine any future private digital currency project issued by foreign corporations – such as Facebook’s Diem, formerly known as Libra – which is perceived as a threat by the Chinese government.įigure 1 | Cash usage by country (% total transactions by volume) The issuing of a CBDC is seen by Beijing as a means to make the PBoC regain centrality in a digitalised economy. Their dominant position in the payment industry poses several concerns on systemic relevance, market power and anticompetitive use of data. Nevertheless, around 92 per cent of mobile payments were made through only two private providers – WeChat Pay (39 per cent) and Alipay (53 per cent) – which are integrated in much larger and diversified ecosystems associated to the Chinese Big Techs Tencent and Alibaba. The number and value of mobile payment transactions accounted for 66 per cent and 59 per cent of total payment transactions in 2019 while cash-based transactions were only 23 per cent and 16 per cent respectively. Its payment market is already extremely digitalised. Strongly incentivised by domestic and external factors, China is leading the race for a national CBDC. With the growing digitalisation of the economy, a CBDC is seen as a tool to mitigate risks related to the emergence of new privately-owned digital currencies and of foreign CBDCs. Unsurprisingly, the geostrategic dimension behind a CBDC is highly emphasised in the political narrative of all major powers. ![]() As suggested by ECB economists, this assumption could also be relevant in the event that a national central bank digital currency (CBDC) is launched, helping to explain why countries seem to be racing over the launch of public digital currencies. In the battleground of global digital competition, countries seek first-mover advantage to set standards and foster a model of development. In June 2021, the e-CNY was employed in more than 70.7 million transactions for a value of 34.5 billion yuan by 20.8 million retail users and 3.5 million corporate users. While the EU roadmap outlines an investigation phase which will end in five years, China has already introduced several pilot experiments for its e-CNY. Days after the European Central Bank (ECB) publicly disclosed its roadmap for a digital euro project on 24 July, the People’s Bank of China (PBoC) published a white paper describing the advancements of its plan for a digital yuan (e-CNY).
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