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China may provide the tech for other countries’ currencies
Long before it was on the Fed’s radar, we predicted that
China’s digital currency would soon have the Western central
banks rushing to produce one of their own. That’s now
happening.
But in our view most commentators miss the crucial
aspect of how digital currency is likely to spread beyond
China. Contrary to the general idea that China’s e-RMB
will increasingly be used in other countries – although
that may well happen – the likely mechanism is that other countries create digital currencies of their own using China’s technology stack.
Some 81 countries, accounting for 90% of global GDP, are
now exploring official digital currencies. A handful of small
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countries have actually launched one already, such as the
Bahamian Sand Dollar. A number of significant economies
have launched pilot projects, such as South Korea, Thailand
and Saudi Arabia. More, such as Brazil, South Africa, Russia
and Japan, have digital currencies in development.
If these are built on Chinese tech – with its inbuilt
emphasis on surveillance and control – that has the
potential to transform the global financial system
regardless of whether or not China’s own currency is widely
internationalised.
Chinese ambitions
As part of broader ambitions to promote Chinese tech
standards in other countries, China’s five year plan makes
clear the aim to “participate in formulating international
digital currency regulations, and digital technology
standards”. Officials from China’s central bank have been
working to that end. For example, the PBoC has joined with
the Central Bank of the UAE, the Hong Kong Monetary
Authority and the Bank of Thailand to test real-time foreign
exchange.
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