The Chinese digital yuan will affect the global financial market controlled by the US dollar. America must act!

Robert Green is a nonprofit member of the Carnegie Foundation for International Peace's Cyber ​​Policy Initiative and Asia Project, focusing on topics related to Chinese finance and cyberspace management; It focuses on the link between global finance and national security.

An expert from the Carnegie Foundation for International Peace, an American thinker, said China is actively encouraging the sharing of the digital and digital renminbi from other central banks and is seeking to develop a global model of CBDC. The successful development of the Chinese digital yuan will affect medium-term financial gains and affect the security and national interest of the United States. Currently, international cross-border payments are made in two main ways. One is the Clearing House Interbank Payment System (CHIPS), and it has been reported that 90% of cross-border payments in the United States are made by Clearing House Interbank. Payment system (CHIPS). , the system is fully controlled by the United States as long as the trade involved with American money can be fined by the system, the other is the SWIFT system, the globalization of the World Monetary Fund, and the countries can prevent penalized sites using SWIFT services. Thus, through these two systems, the United States can establish sanctions against all countries and institutions that adhere to national security and national interests.

As countries accelerate their search for CBDC, the central bank's digital currency, the rapid growth of the Chinese digital renminbi could negatively impact the US dollar-dominated financial system and the US economy.

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As central banks around the world examine the risks and rewards of advertising central bank digital currencies (CBDCs), China has developed central bank digital currencies (digital renminbi). Support costs. If concluded, the deal would allow Chinese companies and their trading partners to reduce U.S. spending on cross-border trade and avoid the impact of U.S. government closures.

The province-sponsored digital renminbi (or e-CNY) has been used to achieve this goal. The digital yuan company, a Chinese joint venture, said in a white paper in July 2021 that the digital yuan is "ready for cross-border use." However, in order to be aware of the strong demand for Chinese state-sponsored digital renminbi, the digital renminbi needs to be integrated with CBDCs in other countries. Therefore, the People's Financial Institution of China supports the development of international CBDC standards and initiates various CBDC agreements in cooperation with other financial regulators.

Such deals could face regulatory challenges, but if done, more CBDC deals could help China reduce the impact of US sanctions and US spending on cross-border trade. These gains are particularly pronounced in emerging markets where the US dollar and US dollar check payments have been used at a high percentage in international markets, but where cross-border payments have become difficult to access. Washington must do more to reduce the risk that growing global interest in CBDCs could lead to increased cross-border inflation that affects the US economy and national security.

Therefore, some existing efforts need to be made more urgently to reduce the cost of existing cross-border trade, which represents a significant amount of money on the ground. We value cross-border trade. If there is no global interest in CBDCs and strong policies to address the inefficiency of most cross-border payments, the United States could lose its major impact on payments around the world.

Why the cross-border payments situation plagues Beijing

In its July 2021 white paper, the company listed “the research and development of cross-border payments” as the goal of the digital renminbi. Cross-border payments are generally a profitable business, not a small expense for consumers or consumer-to-business payments using the digital yuan. In fact, estimates show that over 95% of cross-border trade is business-to-business, and by 2022 this type of payment is expected to exceed US $ 150 trillion annually. In a recent statement released by the chairman of one of China's largest companies and head of state ideology, the digital yuan will continue to rise, pay across B2B borders, and ultimately be useful. Chinese gains have shifted to regional currency values ​​in Asia.

However, today most of the B2B business involved with China and neighboring companies is in US dollars. In fact, data shows that around 80% of exports from Central Asia, East Asia and Southeast Asia are denominated in US dollars, and the report shows that only 20% of China's imports and exports are in RMB, most of the rest being in RMB. is in RMB. U.S. dollars). Although the United States only accounts for about 10% of exports, he estimated that world trade in USD accounts for about 40% of world exports. In contrast, while around 45% of exports are paid in euros, this figure compares with the euro area's share of around 40% of world exports.

These statistics have affected many workers in China who see the management of the US dollar as a threat to global financial security and the US dollar as a threat to China's financial security. Key Chinese officials also spoke, including Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission. In April 2020, the “Qi Shi” newspaper published an article claiming that the management of the US dollar “could undermine the fundamentals of global financial security and have a significant impact. not good… ". in the new trade. It is important to note that the massive use of US funds to trade the currency has strengthened its position as a major global financial and other entity. So, as financial experts from a large state-owned company in China recently said, efforts to reduce the US dollar in cross-border trade can help address the overall risks associated with managing the monetary financial system. American world. .

The chairman of the China Banking and Insurance Regulatory Commission also stressed the importance of Secretary-General Xi Jinping's proposal regarding "financial security." The People's Bank of China believes that the US dollar has been used as a cross-border payment option and that overspending threatens China's financial security. As they noted, the United States could shut down the global payments infrastructure of Chinese financial institutions if those institutions were involved in the trading of companies or individuals based on US financial institutions.

How traditional B2B payment systems work

To understand why this is happening and how CBDCs can adapt to Beijing policy, with the goal of reducing the amount of US dollars spent on international payments, it is first necessary to understand the existing methods that most of B2B users use.

Historically, it has been reported that 90% of cross-border currency transactions, including the United States, are done in the United States and are handled by the clearinghouse interbank payment system (CHIPS) regulated by the United States. CHIPS uses cutting-edge technology to resolve and settle U.S. bank debts through the Federal Reserve with partner organizations. CHIPS subsidiaries are US banks or large foreign banks with branches in the US (such as some of the largest banks in China). Most cross-border B2B US currency exchanges are typically carried out by these entities, which act as foreign exchange banks. This foreign exchange bank provides financial services to other banks, especially those that do not have international branches. Finally, cross-border payments from non-US companies to other companies generally must go through intermediary companies in the country / region where the seller and the customer are located. . .

These payments have been criticized as costly and unprofitable for companies in emerging markets. Due to the time difference between regions and different levels of bank contact (extension due to differences in different results), payment cancellation may take several days. This means that most banks handle prepayments with banks exchanging money to make consumer payments, which benefits it and increases costs. More importantly, major banks around the world have worried about the profitability of their businesses in emerging markets. This is in part due to fears that small businesses may not be able to comply with US sanctions and laws aimed at preventing money laundering. consumption has been reduced.

However, as intermediary banks in Canada, Singapore and the UK have recently pointed out, despite these problems, "bank exchange rates are still the solution to cross-border problems" even if they do not report prices. in USD, they usually work. with intermediaries governed by American standards influenced by the United States being involved. Some banks act as agents to support non-US dollar denominated transactions and even require banks to record transactions denominated in US dollars. The company provides services. Additionally, the messaging system used to send bank payments is typically provided by the World Interbank Finance and Telecommunications Association (SWIFT) in Belgium, where Washington can prevent companies from being prosecuted for using the services.

Obstacles for other cross-border payment methods in China

Many Chinese are concerned that China will rely heavily on SWIFT and CHIPS to support cross-border payments. However, if Beijing seeks to lower its hopes for these systems and reduce its US spending on cross-border Chinese-to-Chinese business-to-business trade, for some almost all prices in the US, it will be lower. Using US funds for existing payments, there must be another reliable and affordable alternative. China has taken steps to implement these changes, but there are important implications for breaking through the US-led payments model.

In 2015, Beijing announced the Border Interbank Payment Agreement (CIPS) to boost yuan trade with Russia, India and other neighboring countries. Recently, the use of these services has increased. Beijing is also increasing cross-border renminbi trade through a global network of branches of large state-owned companies, which can help boost non-Chinese renminbi trade. Thailand in 2015, Philippines in 2021). However, CIPS and major Chinese state-owned enterprises still rely on SWIFT. Large Chinese state-owned companies also need safe US funds to invest in the global financial market. This gives US authorities the right to choose and can separate these organizations from the realities of the global economy if the trade they seek poses a threat to the US economy.

What's more, the data shows that it is cheaper to trade in the United States and then convert your money to local currencies rather than using the RMB. The US dollar accounts for almost 90% of exchange rates, which reduces the value of exchange rates against other currencies. If the payments listed in CIPS and RMB work better than payments based on SWIFT and CHIPS, the cost of using RMB as a currency would in theory be lower than the US dollar, but that is not the case today. More independent trade can reduce costs, but the large international renminbi trade has a major political impact. Liberalized capital flows, for example, can hurt weak state enterprises. Thus, the acceleration of the renminbi in international trade in the coming years will be “stable and cautious” as indicated in the recent five-year plan.

How China is using CBDCs to weaken control of the US dollar

This helps explain why a promising global spread of CBDCs could give Chinese policymakers what they believe to be the best of both worlds. This is an opportunity to reduce the use of the US dollar, SWIFT, while maintaining the slow and steady pace of the internationalization of the yuan. CHIPS trading and new export companies for Chinese enterprises.

A recent study of 65 medium-term banks found that over 60% of medium-term banks have experimented with CBDCs, and medium-term banks in new markets have greater demand for CBDCs. As China chairs the CBDCs, the board of directors of the CBDCs called on other finance officials to improve the level of candidacy for CBDCs, as the executive director of the International Monetary Fund (BIS) recently saw. An organization made up of two medium-sized banks.

Large international CBDC shipments to multiple countries may result in multiple CBDC shipments, allowing one country's CBDC payment system to communicate with another payment method. The Company has announced several CBDC deals, known as the Inthanon-LionRock project, in partnership with international banks and financial regulators in Hong Kong, Thailand and the United Arab Emirates (UAE), but recently changed that. named mBridge. The digital yuan white paper was announced by the Financial Institutions Corporation of China in July 2021, indicating that the project was clearly aimed at reducing the currency outlook. It should be noted that the technical subcommittee is headed by the People's Bank of China.

If done, many of these CBDC agreements would facilitate cross-border payments between China, Thailand and UAE businesses through the benefits of the road under the jurisdiction of the countries and area concerned. Unlike CHIPS and CIPS, this setup can run 24/7. CBDCs from participating countries and regions are interconnected, and the latest mBridge prototypes need to be collected for near-instant CBDC cross-border purchases on the same list. . In theory, this could allow RMB digital currency payments from Chinese senders to be quickly exchanged for Thai CBDCs using foreign currency and placed in Thai bond funds, allowing the central bank to monitor the exchange. In fact, the venture capital firm controlled the level of digital yuan issuance held by non-Chinese companies. Smart contracts can be used to enforce these restrictions, speed up payments, and reduce exchange rates. According to an mBridge report released by financial institutions and financial institutions for the international conference at the end of September, it predicted that the program will reduce the risk by up to 50% in cross-border fees and reduced contract deadlines compared to in the past. candles.

However, achieving these results is not as easy as it looks and still involves a lot of hard work. As noted in the Bank for International Settlements study, a major challenge with this deal is that financial authorities will have to share rules and regulations. But Beijing is unlikely to focus on facilitating more multi-CBDC shipments. This can be compensated for by the simplicity of the CBDC international standardization technology, which makes it easier to integrate this technology into existing systems such as CIPS to support larger operations. . This will help explain why Mu Changchun, director of People Finance Company of China Digital Financial Institution, supported CBDC global cooperation earlier this year. It should be noted that Chinese leaders have called on China to play a role in the development of digital currency models.

The growth in the use of CBDCs in cross-border trade is also in line with Beijing's desire to gradually and steadily realize the international yuan market on demand. As the mBridge examples show, the programmable nature of CBDCs facilitates access to resources that limit the use of foreign currency. Recent studies of central banks suggest that the global spread of CBDCs will prompt more countries to regulate capital.

After all, some employees of Chinese financial institutions believe that the digital renminbi will support international renminbi trade and promote its use as a means of cross-border payment for foreign trade associated with the cheaper and more efficient renminbi. This is in line with the announcement by Li Bo (now vice president of the International Monetary Fund (IMF)), who is the vice president of China's financial institutions in April 2021. He said the yuan target digital is the US dollar will become a major global currency, but what fund is used for international trade and investment if you want trade choice? That said, China is seeking resources to provide competitive alternatives to the US dollar channel to regulate large cross-border payments. With the realization of the market vision of using RMB overseas, Zhou Chengjun, director of the China Financial Institutions Research Institute, said the Beijing "Belt and Road" renminbi can finally be used with the yuan. In other words, the RMB can be created as the local currency.

United StatesfromGood choice

So what should America say? First, the United States should be better prepared to deal with the risk of failure of China's multi-pronged CBDC deal, which is not in the interests of the United States, but to provide higher prices. low for existing cross-border payments under US supervision. Alternative financial brokerage programs. A recent bipartisan bill in the United States urging leaders to study the impact of the Chinese CBDC on national security is a good step in that direction. U.S. lawmakers also need to educate themselves about the potential for economic and national security in finalizing several CBDC engagements overseas. It is also important that the United States work with its allies in the United States to ensure that several CBDC deals are not concluded in a way that undermines American interests. .

You have to accelerate the rapid levels of a bridge over the border over border. The financial assistance processes associated (FSB) 2020 some ideas for the work of the border order, and reduce the amount. However, since the request is approximately several years, FSB should be shorted by the majority of borders through at least 2027. The reason for the delay Money along with existing border is that many systems are closed for some time and weekends and weekends. In order to solve this problem, Washington can provide multiple funds for 7 days a week, 24 hours a week.

In response to China's efforts to support the CBDC, US lawmakers should consider regulatory changes to encourage innovation in the private sector, with the aim of improving cross-border payments for dollars associated with new markets. . One policy option is to allow non-U.S. Banking companies to expand access to digitized U.S. bank debt to create affordable and affordable gold. crisis. Additionally, as the United States explores the risks and rewards of declaring itself a CBDC, lawmakers need to know what steps can be taken to make this cheap and profitable United States business.

Whether or not the United States announces CBDCs, the short-term response to the Chinese digital yuan will encourage American private companies and the public to become more involved in research and development to reduce the cost of large cross-border payments. , especially in new commerce.