Beyond retail, beyond the confines of its own borders, China is eyeing bringing its central bank digital currency (CBDC) to a broader world stage.
The details, at least thus far, are scarce.
To that end, and as reported by Reuters, the Chinese government is seeking to “strengthen” its cross-border yuan payments infrastructure over the next five years, as part of an overall initiative for financial standardization. The country will reportedly explore standardizing infrastructure that in turn would be tied to digital fiat.
Now: Much has been made in the last several weeks about the “official” launch of the digital yuan, in tandem with the ongoing winter Olympics.
And as noted earlier in the year, China’s digital yuan trials captured $8.3 billion of the country’s payments market in the six months leading up to January, and $13.68 billion in the past two years, per data from the People’s Bank of China.
That’s but a small fraction of the trillions of dollars’ worth of payments done annually. But it’s a sign that the CBDC can, and depending on the use case, will, gain traction within China’s economy.
The X-Border Setting
It is the cross-border setting that will, presumably, see the digital yuan be more firmly entrenched in commercial use, in trade finance, in B2B transactions and likely cross-border remittances and consumer-facing commerce.
There’s a read-across here from recent PYMNTS research. Back in September, we found that more than half of multinational firms use at least one type of crypto, with roughly a quarter of companies operating in at least 10 countries using stablecoins. China, of course, has been among the world’s largest economic powerhouses having banned cryptos in favor of a CBDC, so we can surmise that 1) large companies domiciled within China with a global footprint will look with interest on digital currencies and 2) they will have limited options (namely, a CBDC).
Standardizing the infrastructure, as mentioned above, means that China’s government wants to have seamless on and off ramps and conduits to facilitate retail and commercial payments that take place within the country and internationally. That seamlessness begs the question of the CBDC’s impact on geopolitics, with a bit of “catch up” in the works for the United States.
As reported this week, U.S. Sen Pat Toomey (R-Pa), who also serves on the Senate Banking Committee, has said in a letter to top Biden administration officials that China’s digital yuan could open a door for the U.S. to get more heavily into the crypto space. That letter to Treasury Secretary Janet Yellen and Secretary of State Antony Blinken said that China’s digital yuan has the “potential to subvert U.S. sanctions, facilitate illicit money flows, enhance China’s surveillance capabilities and provide Beijing with ‘first mover’ advantages such as setting standards in cross-border digital payments.”
On this last point, it seems the case that China’s efforts to standardize the “rails” that would underpin cross-border use of CBDCs would be a step in first mover advantage. So many other nations are just in the trial stage (or the exploration stage) of their CBDCs, where cross-border functionality does not even seem to be in the works yet — but now will have to be top of mind.