China Leads the Race to Launch a National Digital Currency
The Chinese government is close to developing its own national and officially digital currency. According to Huang Qifan, vice chairman of CCIEE (China Center for International Economic Exchanges), this is a project that is nearing reality, unlike Facebook’s Libra which he thinks will not succeed. Therefore, as it stands, China leads the race to launch a national digital currency.
China’s progress in this area has been an open secret. While it has not been officially made public until now, Facebook CEO, Mark Zuckerberg made mention of this during his interaction with the United States Congress a couple of days ago. Zuckerberg encouraged the U.S. Congress to support his company’s Libra project, in order for the U.S. to hold onto its leadership position in the area of technological development.
A Digital Currency for Financial Inclusion
With this development in China, it will be a surprise if any other nations were to overtake them in achieving this feat. Not just because of the official announcement, but due to the country’s openness in the area of technological adoption and industry participation in the recent years. If China says it has gone far towards developing such a product, it is hard to believe otherwise.
Qifan made this latest development known to participants at the Inaugural Bund Financial Summit of 2019 in Shanghai. This was an event that brought together financial leaders from different parts of the world. The focus of this summit was to pursue financial inclusion, finetech and wealth management for the participating nations and beyond.
The outcry for financial inclusion and how digital currencies can play a huge role in achieving it has been loud, especially since Bitcoin showed up. Finding appropriate ways for banks to enter the ecosystem has also been a long-lasting discussion. With what China has initiated, we might just be arriving at a model that will eventually spread to other parts of the world.
The Quest for Financial Autonomy
While making his speech, Qifan noted that the payment and settlement methods between enterprises and countries need to be reshaped. Some of the things he stressed include the high dependence of China’s Renminbi (RMB) on U.S. SWIFT system and CHIPS for cross-border liquidation. He noted the amount of control that this has given the United States over international transaction systems. Apparently, as China leads the race to launch a national digital currency, it would represent a push towards financial autonomy.
Qifan continued by highlighting some of the deficiencies of the SWIFT system which China has implemented for almost 50 years now. He said;
“SWIFT is an outdated, inefficient and costly payment system. Since the establishment of SWIFT 46 years ago, the technology has been updated slowly and the efficiency has been relatively low. International wire transfers usually take 3–5 business days to arrive. Large remittances usually require paper documents, which presents additional difficulty for processing large-scale transactions effectively. At the same time, SWIFT usually charges a fee of one ten-thousandth of the settlement amount, and has obtained huge profits by virtue of the monopoly platform.”
During his speech Qifan also took a swipe at both Bitcoin and Libra. He expressed what would qualify as the opinion of most governments on Bitcoin, Libra and the cryptocurrency industry in general. This may be among the reasons for the resistance that Bitcoin and cryptocurrencies have received so far from governments across the world.
He insisted that digital currencies like Bitcoin and Libra cannot challenge, let alone represent, sovereign money. Another reason for his criticism, based on his speech is that the basis of issuance of such digital currencies cannot be guaranteed, and its value cannot be stabilized.
A Varying Opinion
Some of these points raised by Qifan are actually the reasons why Bitcoin proponents see it as a superior kind of money, being independent of a central control. Qifan however stated clearly that he does not believe that Libra will succeed.
Digital currencies are already providing numerous solutions that are removing the bottlenecks in the traditional financial systems. Platforms like Vertex.Market are currently providing similar services to what China’s anticipated digital currency is proposing. Cross-border payment through Vertex has eliminated the barriers of SWIFT, CHIPS and other delaying and costly protocols. China’s action however will make a huge statement in government’s entry into crypto.
As China leads the race to launch a national digital currency, Qifan concluded his speech by saying “The People’s Bank of China has been studying DCEP (digital currency electronic payment) for five or six years, and I think the technology has matured. PBOC is probably the first central bank to introduce digital currency in the world”.