*** This post is written in Chinese, with an English translation below ***
《论中国》的书封面。来源：Penguin Books Australia。
亨利·基辛格（Henry A. Kissinger）在《论中国》一书中表达了他对中国的理解：“征服者一代代逐渐被同化到他们当初试图控制的秩序中。最终，他们的老家，即发动侵略的起始点，成了中国的一部分。” 移动支付技术、货币政策、西方经济理论，这些理论及实践在国内如何通过数字货币这个综合体发展下去，会是很有意思的课题。中国所创的崭新工具 — 数字货币，可以赋能于个人和商业实体； 还可能与“一带一路”并驾齐驱，帮助“中国制造”的产品与世界协同发展。中国将不是唯一的受益者，央行数字人民币对国内市场有利，同时，数字货币能降低国际社会的运营成本，节省金融机构清结算开支，更多国家和机构可以从中获益。数字货币发令枪响起，中国已经起跑；其他小伙伴加油！
A Digital RMB pilot has been released in China. This will impact local payments in China, but also has strategic significance for the rest of the world.
The US Dollar used to be gold backed, but this gold standard was abandoned in 1973. RMB (or YUAN) is not backed by gold and in today’s world there is little incentive for a central bank to tie itself to the gold standard. Sovereign credit, institutional acceptance and settlement-friendliness are some of the key factors in the currency race. Now China, looking to take a lead on the currency stage, has come a step closer to the release of a Digital RMB. On April 14th 2020, a mobile wallet interface for a digital RMB was shared all over social networks in China. It is called DC/EP.
DC/EP project development is led by China’s central bank or PBOC (People’s Bank of China). DC/EP stands for Digital Currency Electronic Payment and the Digital RMB will be the only currency in DC/EP. (For more detailed characteristics, please see my previous blog).
Few public details have been released about the development of DC/EP except from speeches by Mu Changchun (head of the PBOC’s research subsidiary on digital currency) and Huang Qifan. Then on 14th April, the mobile interface for a wallet (the Agricultural Bank of China version) was revealed on the Internet. Based on these screenshots we can see that users can receive white-list approval at designated bank locations in four cities, Shenzhen, Xiong’an, Chengdu and Suzhou. The Agricultural Bank of China is one of the major banks in China, alongside ICBC, Bank of China and Construction Bank of China. All of these banks together with China Mobile, China Unicom, China Telecom will participate in the DC/EP pilot testing.
DC/EP will have an impact both locally in China as well as internationally. From the local perspective, China is the biggest mobile payment market in the world. 2019 from Q1 to Q3, a total of 252.2 trillion RMB (equal to 35 trillion USD) was processed according to a research report with a user base of 730 million users in 2019 and 790 million users expected in 2020. So from the local perspective, there is an enormous domestic market of 1.4 billion people, poised to use DC/EP.
From an international perspective, China is looking to boost RMB’s global settlement exposure. The Belt and Road Initiative is a great example of how China has been able to access other markets. Entering the international payments space through a mobile wallet is a far greater opportunity for China to build deep relationships with foreign nations and citizens. Based on available information, DC/EP does not enforce complete KYC on all users in the production phase, which means that users may feel comfortable holding and transferring small amounts in an anonymous setting, just like cash.
From the multilateral perspective, Coronavirus and quarantine have made economies slow down, with Trump calling on companies to move back to the homeland. This policy of “de-CHINAlization” seems to be spreading elsewhere, making it ever more important for China to maintain its relevance. Becoming the future global settlement currency is one way to maintain leverage. Digital currency is likely to become a favoured payment mechanism once it becomes commercially viable in the next few years. In that sense, holding digital RMB in DC/EP and digital USD in Libra could become popular hedging strategies available on the FX market, although the two digital currencies operate quite differently.
This interview with Mikko (in Chinese), the founder of Wisburg, a research agency focusing on economics, highlights that Libra is a private currency with collateral in the form of real USD from the Fed, and custodians in the form of regulated banks. Conversely, DC/EP is itself sovereign authority issued and enforced. No one can refuse to get paid in RMB Cash or equally DC/EP in China. In a nutshell, Mikko believes DC/EP to be a top-down currency that will be more legally accepted than Libra, the bottom-up currency. These two systems encapsulate the different philosophies of the US and China, with the current trials of DC/EP likely forcing the US to speed up its legislation around the creation and use of a digital USD.
Henry A. Kissinger’s book “On China”, expressed his understanding that whoever gets into China can not completely change China to the way he/she wants, but can only try to adapt and merge into China. It will be interesting to observe how digital payment technology and monetary policy as an adapted implementation of western economic theories evolves in China. China has invented a new tool, DC/EP, to empower both individuals and entities in digital payments. This tool may go hand in hand with the Belt and Road Initiative, helping products that are “Made in China” merge with the rest of the world. China will not be the only beneficiary. Digital RMB adoption is good for China internally, but more fundamentally, digital currencies will reduce social and financial operating costs, saving economies billions of dollars. The digital RMB pilot demonstrates that China is ready to lead the world in digital payments and it will force other countries to speed up their own initiatives so as not to be left behind.