The Chinese central bank digital currency (CBDC) is set for new trade-related application trials in the financial centre of Shanghai following the execution of a cooperative agreement by local authorities.
The Digital Currency Research Institute of the People’s Bank of China (PBOC) – being the Chinese central bank – recently executed a strategic cooperative agreement with the government of Shanghai’s Changning district for the establishment of a new fintech company that will create “a trade finance blockchain platform and technical research and development centre.”
Sources said to 21st Century Business Herald that this means the digital renminbi is on track for new application trials involving small-sum trade settlement and supply chain financing.
“In actuality, there have already been developments for the application of digital currency to supply chain financing and trade settlement,” said one source, highlighting the use of cryptocurrencies for these purposes by North American and European companies.
“However, because these digital currencies lack sufficient credit backing, their scope of usage has been comparatively narrow.
“If central bank digital currency can participate in small-sum trade settlement or supply chain financing then even more small and medium-sized enterprises on industry chains would benefit.”
The use of CBDC for cross-border trade purposes is also expected to expedite internationalisation of the renminbi, if China executes more currency-swap agreement with other countries and PBOC can establish a multi-tier operating system and settlement model with overseas commercial banks and central banks.
The Chinese central bank announced in April 2020 that it had commenced trials of the CBDC in four cities around China including Shenzhen, Suzhou Xiong’an and Chengdu, following a five year research and development period that kicked off in 2014.
Authorities have yet to provide a firm date for official release however, despite announcing in September that the “conditions are ready for deployment.”
The southern tech hub of Shenzhen issued 10 million yuan in CBDC to local residents on 11 October via a lottery which drew the participation of over 1.9 million people. On the same date the State Council issued an ambitious reform program for Shenzhen highlighted the implementation of further digital renminbi trials.