The Chinese digital yuan could affect the global financial market, which is controlled by the US dollar. America must act

As the country ramps up its research on the central bank's digital currency CBDC, the rapid growth of the Chinese digital renminbi in particular will negatively affect the finance-centric economy and the country's national currency Meskas.

Robert Green is a nonprofit member of the Cyber ​​Policy Initiative and the Asia Project of the Carnegie Foundation for International Peace, 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 African thinker, wrote the following:China has actively promoted the integration of the digital renminbi with other digital banking companies and is seeking to establish a global CBDC standard. 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 administered entirely by the United States and can be sanctioned by a system, which trades in US money, and the International Monetary Fund and the United States. , elsewhere, it is the SWIFT system. is. 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 country steps up research on central bank digital currency CBDCsIn particular, the rapid growth of the Chinese digital yuan will have a negative impact on financial earnings and interest rates in the United States, so the US government must act!

Here is the full text:

The central bank decides the average bank account (CBDC) to give the risk and low-ending benefits of the World Bank Digital Bank Digital Company. (Digital RMB). Are covered. If possible, these tests can close the channel to reduce US lases in the United States and Bypass Country of the US government.

The province-sponsored digital renminbi (or e-CNY) was used to achieve this goal.The digital yuan company 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 submissions may encounter administrative difficulties, but if successfulSeveral CBDC deals could help China reduce the impact of US sanctions and spend US money on cross-border trade. These gains are particularly significant in emerging markets where the US dollar and US regulators have exerted high pressure on global markets, but where cross-border payments have become difficult to access.. Washington must redouble its efforts to reduce the risk that growing global interest in CBDCs could lead to increased cross-border inflation that would affect 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. Without a strong policy to address the growing global interest in CBDCs and the inefficiency of most cross-border payments, the United States could lose its major impact in international payments.

Why the cross-border payments situation plagues Beijing

Baekji people on the July 2021 will make a payment method for payment "as one of the digital RMB goals as one of the purposes. Cross-border payments are generally a profitable business, not a small investment 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 these types of payments are expected to exceed $ 150 trillion. In a recent statement by the president of one of China's largest companies and the head of state's ideas, the digital yuan will further rise in the market through payment exchanges, finally helping the Chinese. currency exchange in regional currencies 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 data shows that only 20% of China's imports and exports are in RMB, most others are. 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 newspaper "Qi Shi" reported that due to the control of the US dollar, "the United States pursues a policy of non-aggression." Especially in the new business. 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 head of the Financial Institutions Management Board also stressed the importance of Secretary General Xi Jinping's proposal on “financial security”. Its relationship with the People's Bank of China believes that the US dollar can be used as a cross-border payment, and its widespread use will affect 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 the CBDC can adapt to Beijing's political goal of reducing the use of the US dollar as a means of payment for commerce around the world;The first step is to understand the existing channels that most B2B users use.

According to historical documents,90% of cross-border money transfers involving the United States are made within the United States and are sponsored by the United States' federally managed clearinghouse interbank payment system (CHIPS).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 of the cross-border B2B businesses included in the United States are typically carried out through these facilities, which act as currency 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-U.S. Businesses to other businesses typically have to go through intermediary businesses in the country / region where the seller and customer are located direct purchase, which in turn is paid by affiliates. by CHIPS. .

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 hold prepayments with their banks to make consumer payments, thereby generating income and increasing 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 fear that China will rely heavily on SWIFT and CHIPS to facilitate 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 perform better than payments based on SWIFT and CHIPS, the cost of using RMB as a currency would in theory be lower than that of the US dollar, but that is not the case today. A higher renminbi exchange rate could also lower prices, but the large global 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 some want the global broadcast of CBDCs to give Chinese policymakers what they think is 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.

Note.A recent study of 65 medium-term banks found that over 60% of medium-term banks have experimented with CBDCs, and mid-term banks in emerging markets are: more demand for CBDCs.As China chairs the CBDCs, the board has introduced another financial management to improve the level of implementation of the CBDCs, as seen recently at the senior board of the Bank for International Settlements ( BIS). 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, announced by the Financial Institutions Corporation of China in July 2021, makes it clear that work is clearly underway to reduce the currency outlook. It should be noted that the technical subcommittee is headed by the People's Bank of China.

is completeMany CBDC agreements facilitate cross-border payments between Chinese, Thai and UAE companies through financial transactions in various countries and regions.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 was in line with what Li Bo (now vice-president of the International Monetary Fund (IMF)), who became president of the Bank of China in April 2021, said.He believes that the purpose of the digital renminbi currency is not to replace global currencies, the US dollar, but to allow investors to choose which currencies to use for global trade and investment.That said, China is seeking resources to provide competitive alternatives to the US dollar channel to regulate large cross-border payments. Zhou Chengjun, director of the China Financial Institutions Research Institute, said that with the completion of the market-oriented foreign yuan,More foreign investment gains supported by Beijing through the “One Way, One Way” plan will ultimately be well pegged to the RMB.In other words, the RMB can be created as the local currency.

United States Choice Policy

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's also important that the United States work with its allies in the United States to ensure that much of the CBDC deal is not done in a way that is detrimental to American interests.

Efforts to reduce the inefficiency of existing exchange rates must be accelerated.Some Financial Security Council (FSB) recommendations for 2020 on supporting cross-border payments, such as the integrated payment model, can speed up and streamline payments and reduce the amount of high cross-border fees, once adopted. However, the estimated useful days of many agreements will remain for many years to come, and the FSB estimates that the time required for most large international payments will not be reduced to less than an hour by at least 2027. L One of the main reasons for late payments across existing borders is that many machines used to make large payments are closed on certain days of the week and most weekends. To solve this problem, Washington could spend more money on the CHIPS and FedWire exchange (real-time payments operated by the Federal Reserve, which is essential to the CHIPS process) every hour, 7 days a week.

In response to China's efforts to support the CBDC,Lawmakers in the United States should consider regulatory changes to encourage innovation in the private sector, with the goal of improving cross-border payments to the private sector.One optional policy is to allow non-U.S. Businesses to expand access to digitized U.S. bank debt to create affordable, high-speed solutions. Business problems with insufficient banking services avoid financial security problems. 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.