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Recap: Money Talks: How the Digital Yuan Will Change China—and the World, 7.8.21

Recap: Money Talks: How the Digital Yuan Will Change China—and the World, 7.8.21

China is taking the lead in the global race to launch central bank digital currencies. In June, China distributed some $6.2 million worth of digital yuan to Beijing residents via a lottery, and the short-term goal is to have foreigners use the digital yuan at the Winter Olympics in 2022. In a far-reaching discussion on payments, processing, power, and more, U.S. and Chinese experts discuss what is at stake, the opportunities and challenges, and how China is re-imagining its own financial infrastructure.

The program was presented in partnership with the Peking University Alumni Association of Greater New York.

Speaker Bios:

Lian CHENG (LC) is one of China’s leading thinkers on digital currency. He is Vice Director, Center of Financial Policy, Chinese Academy of Social Sciences (CASS) and Head of the Department of Fundamental Research, Institute of Finance & Banking, CASS. He is also the Executive Deputy Editor-in-chief, Chinese Review of Financial Studies, one of the top Chinese academic journals in financial research.

Josh Lipsky (JL) is the director of the Atlantic Council’s GeoEconomics Center. He previously served as a senior advisor at the International Monetary Fund (IMF) and Speechwriter to Christine Lagarde. Prior to joining the IMF, Lipsky was an appointee at the State Department, serving as Special Advisor to the Under Secretary of State for Public Diplomacy, and worked in the White House, focusing on G-20 and other global summits.

Moderator’s Bio:

Peter Reisman (PR) is a Managing Director and the Chief Communications Officer at Bank of China U.S.A., where he leads a group focusing on government and public relations, business development, marketing, and corporate social responsibility. He also serves as Co-Chair of the Government and Public Relations Committee for the China General Chamber of Commerce- U.S.A.

Full Video of Money Talks:

Selected Program Quotes:

From Josh Lipsky

“We certainly expect China’s digital currency to ramp up as we get closer to the Beijing Olympics.”

“Separate from the Digital RMB, cryptocurrencies are a challenge to central banks all over the world. One reason why central banks are pursuing central currency makes them fear that they could lose monetary sovereignty over their economies. These are connected.”

“We in the west like to look at these advancements in China and think it threatens the dollar, but I think the west misunderstands the domestic implications for monetary and fiscal policy.”

“One of the issues in the West, is they say specifically that they are worried about privacy, security, and protecting users. It is a different situation in China in how it is being developed in China.”

“Overtime, as belt and road debt gets denominated into yuan, you could see it overtime being part of the internationalization of the RMB. However, I don’t see this as the ambition or most likely potential outcome for the digital Yuan.”

“In almost every country we look at that is creating a central bank digital currency, almost all of them are going through commercial banks. The federal reserve does not want to have 330 million customers, and wants to deal with all of the administrative quarrels. It is not competing with the banks, but actually working in cooperation with them.”

“Most countries are asking for the creation of wallets so they can have some sort of verification mechanism within them.”

“Western holdups with regards to digital currency generally has to do with privacy. People might be comfortable in the US that PayPal knows what they’re doing, but not with the federal reserve knowing. China is working on this, the offline communication and offline payment part is very interesting to the general public, because security measures go into securing those payments”

“The first way this could go is that China continues to have successful tests of its pilot, the PBOC can rapidly scale this up, and then this becomes a big player within China along with the other ways people use financial systems within China. Other systems will continue to develop. The inflection point is when cross-border exchanges happen. Will it come first from China, or other countries? The game changer for the world is not countries creating their own digital currencies, but the ability for it to be sent instantly overseas. If this happens, you will see a change in the way the exchange rate market works, potentially make the SWIFT system obsolete, and could cause a lot of disruption. However, we are not technologically there yet because each country is trying to figure out how to do it for themselves.”

“If the PBOC (People’s Bank of China) wanted, and had the capability, it could completely dominate the digital payment market. The state is able to do much more with money than the private sector can do, but I am not sure if that is what the state once. They do not want to wipe out their financial systems in the process of making this change.”

“There are conversations that go on about digital currencies between working groups, and central banks. However, there is a hesitancy in the west of including China in these conversations. There are security fears. The political issues sometimes gets in the way of what could be a useful technological exchange, however we do need to be careful in this early exchange about how much is being shared. I do think the G20 is an appropriate forum to have this conversation, but there is not much conversation taking place between the U.S. and China.”

“Will the U.S. government allow American athletes to use the Chinese digital yuan? What restrictions will foreigners have with spending in China? I think these issues will be covered in the press in the coming months.”

“Most countries haven’t explored how foreigners can use their digital currency. Lots of countries will look to China on how they handle it. However, it is not the priority of central banks to solve how tourists can use it, or how it can be used overseas.”

“You only need to look at the U.S. to see why governments would be more interested into getting money in people’s hands immediately. With digital dollars, it could completely transform the way we give stimulus, distribute food stamps, and pay taxes. Prior to the pandemic, it wasn’t on government’s minds that they needed this in their arsenal. In China’s case, it is not that they want to displace the banks, and other financial institutions and mechanisms, but it is something they want in their arsenal.”

“I would agree with professor Cheng, I am an optimist as well. Where there is peril, there is more promise. The Chinese created cash, and then the British created checks, and so on and so forth. This is the next evolution of money. It is not only a China or US story, but it is a global story. 80 countries around the world will dictate what they need, say what they want, and the global financial system will change based on all of their actions.”

Quotes from Lian CHENG

“China’s Digital currency will be a cooperation of the PBOC, and commercial banks so it can be circulated to consumers. Different commercial banks issue different digital yuan”

“The PBOC wants the digital yuan to replace cash at some point in the future”

“It is impossible, at least in the foreseeable future, to challenge the Dollar’s leadership. The digital yuan cannot help much in this matter. The purpose of the digital yuan is for internal developed. Currently, Alipay and WeChat pay dominate the market. But, it is the central bank’s responsibility to provide ways to pay for the people, not the market.”

“I understand the concerns behind those media reports, as many believe it is the result of an arms race. However, many politicians don’t understand the purpose of our digital currency. Generally, I think it is not the case that the digital yuan’s goal is to displace the dollar.”

“The most important difference between digital RMB and cryptocurrency is that the digital RMB is developed by the Chinese central bank, while the other is not. You also have offline payment functionality.”

“The Chinese government cracked down on crypto not because it is dangerous technology, but because it is dangerous with respect to financial markets.”

“For third party payment systems, the digital Yuan is bad news. It is a greater threat to their market share.”

“I think the Chinese government is worried about Alipay and WeChat being the main mobile payment systems. However, sometimes using those payment systems makes me feel uncomfortable because of the amount of data they are collecting.”

“Actually, Bitcoin does not make capital flight outside of China easier. Private digital currencies cannot achieve much in this area, because of how regulated the Chinese financial system is.”

“I am worried about some aspects of digital yuan having online payment functions. It is convenient, but sometimes it is not very safe. For the offline payment systems, this is a problem as well.”

“In the short run, I don’t think the global system will change very much. We are already in a digital world, so it is natural for the legal tender to go digital. In China, already most payments are cashless. For the long run, it is a different story.”

“We need a global regulation framework, but at this state, I am not seeing any active discussions on this topic between the central banks of the U.S. and China.”

“It is more and more likely that tourists will be likely to use the digital yuan, especially during the winter Olympics. This is also behind the motivation of developing digital yuan. For foreigners, it is very difficult to use WeChat or Alipay. However, with digital yuan, you will only need a digital wallet. This will only need to link with your passport, and not with a Chinese bank account.”

“In China, we have the shadow banking system. However, the definition is actually something within the banking system, not how westerners view it. This is just a way for banks to circumvent regulations, it is an issue with banks and enterprises. It does not have much interaction with the digital yuan, or even private cryptocurrencies. The relationship with shadow banking in China is not of regulatory concern in China.”

“For a Chinese consumer, the first consideration is the fee, and second is convenience. For Alipay and WeChat payments, they are free for the consumer. They only collect fees from shops. At this stage, the plan is that the digital yuan will be free for consumers and shops that accept the digital yuan.”

“At this stage, I do not think it is the goal of the PBOC to destroy third party payment systems, they just want to gain some more control in payment systems. The digital yuan is promising for Chinese consumers, and good for the market overall. I think there are some downsides to digital yuan, but generally, I think it is very promising and I am optimistic.”

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