Digital currency (4) : Internationally?

I am closely following the gradual introduction of the Chinese digital currency. Moreover, my curiosity is sharpened by the country’s authorities’ very great discretion around this project. The Trigger Trend site even talks about secrecy. In China, silence and the unspoken have significant meanings; certainly, major projects are at work.
What’s new, according to the Tiger research bureau?

First outing from China

He reports that the new Xiongan area south of Beijing is preparing to encourage cross-border e-commerce while exploring its possibility. Is this the first series of tests ?

Internet giants are being brought in to help.

Ali Baba and Tencent have already worked on this currency with the central bank, Bilibili, Meituan, and Didi. All these companies have remained rather discreet about this cooperation.

An undeniable potential

Individual investors are very attentive to companies that could be part of the movement. HyUnion Holding 海联金汇, a company in Fintech and artificial intelligence, had to deny its participation in the project.
If 82.39% of adults practice payment on the Internet, only 4% use Fintech to manage their asset. The potential is undeniable. When asked about the money held in these digital wallets, the government does not answer.

Control

The Central Bank does not want to let go of Fintech’s domain and leave the management to private companies. Even if it is claimed that the flows are anonymous, it is elementary for the Central Bank to have all the information on the issuers and recipients of a money transfer.
According to the Singaporean Bank DBS chief economist, Neilin Zhou, the central bank, will effectively fight a debt crisis. For example, to stop the worsening of the construction of these ghost towns 鬼城, the Ministry of Finance will interrupt investors’ money transfers very quickly.

The application for digital money :

Internationalization of the yuan

Is the purpose of this currency to challenge the United States? Initially, it was intended mainly for the local market. Still, the turn of Sino-American relations in recent years has prompted the authorities to take a more global and international view. The digital currency could help the yuan’s internationalization, which is increasingly in demand in the financial spheres. We have moved from the position summarized by the Standard Chartered Bank strategist as follows: “The internationalization of the renminbi, originally a good have; now it is slowly becoming a “must-have” 人民币国际化,原来是一个good to have 的东西,现在可能慢慢的变成一个must have. »

To be continued

Source :
中国数字货币大动作频频,但距离挑战美元霸权还是一个遥远的梦

To learn a little more about the subject, other articles here :

China’s digital currency

Digital currency in China (2)

Digital currency (3) and the Ming dynasty

8 September 2020

Digital currency (3) and the Ming dynasty

A Chinese reader told me the parallel drawn by Wen Zhao between Chinese digital currency and banknotes’ issuance under the Ming dynasty. The Taiwanese chronicler considers this innovation similar to the printing of paper money with all its consequences. Let us return to these Ming banknotes.

Zhu Yuanzhang fought the Mongolian Yuan dynasty and founded the Ming dynasty in 1368. Hong Wu – his emperor’s name – tried to create a self-sufficient society.

Metal crisis

Soon, bronze, gold, and silver used for the exchanges began to run out. The Chinese Empire had already resorted to the issue of banknotes in previous dynasties. To ensure trade, the government in 1375 decided to create a paper currency, called Da Ming Baochao (大明宝钞). The population was obliged to change the metal in their possession to get banknotes.

Lousy time for arrangements between friends

The emperor came from a poor peasant family and harbored a hatred for corrupt officials. The process was aimed, among other things, at this caste and the drying up of their resources. Of course, with this episode, one thinks of the tons of red banknotes piling up in civil servants’ houses’ recesses in our time. China’s economic opening has generated colossal corruption that affects many society levels up to the highest levels. The Chinese press, even if selective, has widely covered these cases. The introduction of digital money also targets so-called dirty money.

Inflation is not far away

Very quickly, galloping inflation followed, and in 1400, two years after the disappearance of Hong Wu, banknotes were worth only 3% of their value. A huge black market had taken place where old metal coins from previous dynasties were exchanged.
A new bubble is coming?

What are the motivations?

The arrival of this digital currency raises many questions. What is the real objective? As is often the case, depending on where one stands on the political or ideological chessboard, or according to one’s interests, the answer varies. I read all sorts of hypotheses. Control of society and capital, protection, modernization, sanitation, difficult times. And why wouldn’t it be a cocktail of all these motivations?

More articles on digital currency here

Sources, video by Wen Zhao:

30 August 2020

Digital currency in China (2)

I had presented the main features of the digital currency -数字货币 – Chinese here, according to the available data. Today, the Chinese press has recently released some information.

No planning?

On August 14, the government announced the test areas’ extension to 28 provinces and cities managed directly by the government. The Beijing-Tianjin-Hebei zone (京津冀), the Pearl and Yangtze deltas, and the central-western region are concerned. Questions are being asked about these developments. The Chinese newspapers echo rumors : Shenzhen apartments will only be sold with this currency and that it will not be used to buy gold or foreign currency. Nothing has been officially denied. A Central Bank official only stated that there was no definite schedule for this. Hard to believe!
Since the end of April, in the new Xiongan economic zone south of Beijing, many retailers, Starbucks, McDonald’s, JD.com and Subway, are already using tomorrow’s currency. Didi Chuxing, the Chinese Uber, has already conducted tests with its half-billion customers.

The winners?

Ant Financial and Tencent would be associated with certain projects in the field. Companies in the financial services industry that could benefit from this innovation include: Westone Information Industry 卫士通, Client Service International Inc 科蓝软件,Shenzhen Forms Syntron 四方精创,Koal Software Co 格尔软件, HyUnion Holding 海联金汇 and Hengbao Co Ltd 恒宝股份.

The likely adoption of digital currency is linked to many prospects. China has long sought ways out of the dictatorship of the dollar god. This is one path. Digital currency is, of course, part of the digitization of society stimulated by the two leading groups Alibaba and Tencent, and covered by the central government. Dirty money will have more difficulty evaporating. It will allow better control of the capital.
On the other hand, Big Brother will know more about everyone. It’s clear, a different world, a different model is needed. On the whole, the Chinese accept it as long as growth is there and shared – in part!

Articles on finance here

28 August 2020

China’s digital currency

China has been working for five years on the use of a digital currency. To escape the yoke of the dollar system, the government has encouraged the use of its currency in international transactions since 2010. In 2018, it launched yuan oil futures contracts. The Chinese authorities have just broadened access to Chinese assets to stimulate the use of its currency. But that’s not enough, the country that could become the leader in digital field (see the article by Jean-Dominique Seval, in French) has been working since 2014 on the use of a digital currency 数字货币- DCEP for Digital Currency Electronic Payment. While several cities, such as Suzhou or Shenzhen, have started to test its use, the media in recent weeks have increased the number of articles and programs on the subject to praise its benefits. Let’s see the reasons, the difference with the applications used in China,, and the objections.

Digital Chinese Currency

The reasons

The first official reason given is the fight against financial crime, money laundering and corruption. Indeed, by tracking transactions, the Central Bank could more easily locate offences. Moreover, this would avoid the mountains of cash amassed from officials with large open pockets, as the latest anti-corruption campaign has shown. 
This currency would help to mitigate capital flight. China has in recent years tightened its foreign exchange export controls for individuals and companies, but there are still plenty of ways to circumvent the regulations.
It would counter crypto-currencies, which China cannot control and which allow greater freedom of capital.
Several leaders of the banking authorities have made no secret of their desire to free themselves from the international payment systems where the dollar is king, SWIFT (Society for Worldwide Interbank Financial Telecommunication) and CHIPS (Clearing House Interbank Payments System). Last year, in front of the American trade war, the Chinese authorities to speed up the project and the official media proclaim that this currency offers an alternative to the dollar settlement system while making it possible to mitigate the impact of possible sanctions or exclusions of a country or companies.

Identical to the local currency

The central bank has specified that digital currency has the same characteristics as local currency. Payment cannot be refused by a merchant. Its value is equal to the yuan. Today, in China, one can do without cash and credit cards for the vast majority of expenses by using the payment methods of We Chat 微信 or Alipay 支付宝. You can even feel like a silly person when you take a coin or a bill out of your pocket! But, what are the differences with the fashionable payment methods?

Differences with Alipay and We Chat

For both applications, the accounts must be linked to existing bank accounts, whereas for the DCEP, the user does not need a bank account. The Central Bank delegates the management to payment and banking institutions but the opening of an account will not be mandatory, it will be sufficient to deposit money in a special account. Nuance? It is fine! He will need to download the application of the Central Bank. Nearly 200 million Chinese have no bank account. An advantage for this new currency. A merchant is not obliged to accept these applications, on the contrary for the currency.To use Alipay and We Chat, a connection is essential, whereas for digital currency, only one phone will be needed, which will be put in front of the other phone to carry out the transaction.
Does the arrival of DCEP herald the death of these flagship applications? Can we be satisfied with the official discourse that sees two complementary means? 

The differences with crypto currency

This currency is more secure than a crypto currency, such as Bitcoin, because it is guaranteed by the Central Bank, so stability would be assured.The Chinese government points out that it is legal, unlike Bitcoin…

Objections

Of course, the critics of this project retort that it is a way to control, monitor the population more and make the ticket board work at a lower cost.

The desire to get out of the dollar system is probably the primary motivation for the introduction of this digital currency. Its widespread use would give greater independence and help to better manage capital outflows. There is still a long way to go. Will this project be successful? The United States is also nurturing a digital dollar project. Will the two powers still be competing on this front?

Sources:
Article : 第三方支付:数字货币推动下的支付体系重构
New channel in Chinese on Youtube dedicated to the topic

10 June 2020