Chinese experts see the central bank digital currency (CBDC) as a vital means of facilitating cross-border transactions and expediting the internationalisation of the renminbi.
The Chinese central bank announced the commencement of trials of the CBDC in April 2020 across four cities, including Shenzhen, Suzhou, Chengdu and Xiong’an, while in August the Hebei province government issued a notice calling for cross-border e-commerce transactions in Xiong’an to make greater use of the renminbi, as well as exploration of the use of the digital currency for cross-border payments.
Pan Helin (盘和林), head of the Digital Economy Research Institute of the Zhongnan University of Economics and Law, said to 21st Century Business Herald that the digital renminbi could be the solution to the current difficulties involved in making cross-border payments.
“At present the main problem with cross-border payments is that the period of time for needed funds to reach accounts is long, the speed is low, fees are high, procedures are numerous and efficiency levels are low,” said Pan.
“The biggest advantages of the digital renminbi are convenience, high-efficiency, high timeliness and low cost, and for these reasons it can overcome the existing deficiencies with traditional cross-border payments methods.”
Hao Yi (郝毅), a postdoctoral researcher from the Renminbi University School of Economics & Finance, said that the digital renminbi could greatly reduce the amounts of liquidity and time required for cross-border payments procedures via the incorporation of blockchain technology.
“Survey data indicates that occupation of liquidity is the biggest cost for the SWIFT cross-border payments system,” said Hao.
“Blockchain technology raises the efficiency of cross-border payments systems, reduces cross-border payments timeframes, and reduces the liquid funds used. The cost for financial institutions to conduct cross-border payments will be reduced.”
Hao points out that while the digital renminbi at present does not make use of blockchain technology domestically, it will likely incorporate the technology into any future cross-border payments systems.
Liu Bin (刘斌) a financial researcher from the Pudong Reform and Development Research Institute, said that the CBDC could also help to expedite internationalisation of the renminbi, pointing in particular to the following areas of development:
- Driving the use of the renminbi for trade between China and ASEAN countries and China and Belt and Road countries;
- At present free trade zones throughout China are exploring cross-border financing, and in future these free trade zones could serve as drivers for international use of the digital renminbi;
- Overseas consumption by Chinese tourists and travellers could expedite the use and circulation of the digital renminbi abroad, in turn driving the establishment of corresponding systems and coordinating mechanisms abroad.