Today, China is already test-driving the future of finance like the rest of the world is stuck striving relentlessly to get its learner’s permit. In the last two weeks, the Chinese authorities in various cities including, Chengdu and Shenzhen unveiled the country’s brand new digital renminbi currency and are encouraging an even faster rollout of the token countrywide.
The People’s Bank of China (PBoC) has distributed the digital yuan currency to ‘lottery’ winners who are allegedly spending it at thousands of retailers like the local pharmacies, supermarkets, and even Walmart. Deputy governor of the People’s Bank of China, Chen Yulu, said:
“We must serve dual circulation with fintech-led innovations. We must build an independent and high-quality financial infrastructure … quicken the pace of research and development of the central bank digital currency, and ensure that pilot tests show [the digital currency] is controllable and safeguards the security of payments.”
On the flip side, The Bank for International Settlements together with seven mainly Western central banks like the European Central Bank, the Federal Reserve, the Bank of England, and Bank of Japan published a report last week. That report detailed the core features and foundational principles of a possible central bank digital currency (CBDC) to “guide exploration and support public policy objectives.”
But, none of these central banks committed themselves to pursue or producing a digital currency as part of its report. The current health crisis has accelerated the world’s shift away from paper money and developing the first CBDC in the world may put China on the leader’s board to steer the future of currency and payments around the world.
Between The Lines
The Chief Executive Officer of European operations at Visa, Charlotte Hogg, said:
“If you take the last 250 days what has happened is we’ve gone into a different pace of digital. Everything that we can see is that people who never used digital payments before are using them. They’re going to continue to use them, particularly as those more vulnerable in our societies continue to shield and it’s going to be ever more important for our recovery for all of our business communities to be able to use forms of digital payment.”
She was speaking at a panel at the Institute of International Finance’s annual meeting held on October 13.
Putting things into context, Facebook tried to create a digital currency dubbed Libra. This currency would have been convertible across borders and offered users the chance to spend and exchange it. However, it was rebuffed by the United States, and other international regulators worried about a for-profit company having quite excessive influence on the supply of money.
That fear is still a driving force behind most of the central banks’ efforts. Also, the desire to ensure that commercial banks are not left out in the cold after digital payments make most of their services obsolete.
For now, China appears to be miles ahead in the race of creating central bank digital currencies as other countries try to catch up with them.