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Professor Sarah Hall of the University of Nottingham is a specialist in the changing nature of international financial centres. She spoke to BizNews about the digital yuan. China has created its own digital currency, a first for a major economy. Digitised money looks like a potential macroeconomic dream tool for the issuing government, usable to track people’s spending in real time, speed relief to disaster victims, or flag criminal activity, says BizNews Premium partner The Wall Street Journal. There are concerns that Beijing stands to gain vast new powers to tighten President Xi Jinping’s authoritarian rule. – Jackie Cameron
Professor Sarah Hall on why China has decided to introduce a digital yuan:
When we think about the digital yuan, we need to think about what China’s policy aspirations are for its currency, more generally. I think the digital yuan fits within that wider ambition. For a number of years now, China has been looking to internationalise its currency, the Renminbi. It’s done this partly in response to a desire to be less reliant on the US dollar. This was really triggered, most notably I would say, by the 2007/8 financial crisis. The digital yuan can be seen as the latest version of this wider policy approach of trying to internationalise its currency.
On the difference between it and Bitcoin:
Your readers might be more familiar with cryptocurrency like Bitcoin. They really dominated the debate about digital money and they exist outside of the international financial system. They aren’t legal tender like the cash we use and spend on our credit cards. The Chinese digital currency is slightly different. It’s controlled by its central bank – the PPOC – and they will issue the new electronic money. It will be distributed via commercial banks within China. It’s authorised by the Chinese central bank.
Another key difference between the digital yuan and Bitcoin is that the digital one doesn’t maintain anonymity for the user. The Chinese authorities will be able to see where and what people are spending on through using the digital yuan – which will be available through mobile technologies and other kind of payment methods – which are quite widely used in China. I think the key thing here is that mobile digital payments are very popular within the Chinese economy and have been for some time. China has been a leader in digital payments more generally. Again, we can see the digital yuan as being the obvious next step to that.
On what this means for countries that trade with China:
It’s quite early to say exactly what some of the longer term implications may be, but I think there is scope to see how China may be envisaging the digital yuan being able to compete with the US dollar. For example, if we saw more dollar-driven crises in emerging economies, it’s possible that the yuan might emerge as a viable alternative to compete with the US dollar.
And here, there’s a couple of elements where you can see China’s policy trying to do that. One that I think is particularly interesting is with regard to payments. China has a cross-border interbank payment system, which is designed as an alternative to the US payment system – which is called Swift.
China is trying to make their version more internationally attractive, through things like lower transaction fees and faster settlement times. These are written into the digital yuan, and it might be through those avenues that you see the digital yuan being more important internationally.
On whether this digital wave could move to Africa:
Countries on the African continent are already quite well-developed, in terms of their own approach to digital payments. In that sense, those countries may be seen as viable partners for China in this project. One of the ways in which you might think about the links between digital yuan and other emerging economies is through the payment system. I think an area to watch there is the extent to which – if there were further, different crises in emerging economies – a Renminbi or digital yuan denominated payment system starts to look attractive. But that’s a few years down the line.
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