Richard Turrin Rich Turrin is the author of the best-seller “Innovation Lab Excellence” and the soon to be published “China’s Digital Currency Revolution.” He previously headed IBM’s Fintech Innovation Lab in Singapore and IBM’s banking risk technology team in China after a 20-year career in investment banking. Connect on Linkedin or Twitter for more, and sign-up for notification of his coming book on China’s CBDC here.
C Thought Leadership: China’s CBDC
Will It Steal the Dollar’s Place in the Sun? With some 60% of the world’s currency reserves and 80% of international trade denominated in US dollars, it’s easy to take for granted that the dollar will be the currency of choice for years to come. But will its domination last? China’s Central Bank Digital Currency
(CBDC) is almost ready for launch. With talk of US-China decoupling making the front-page every day, the novel currency has caught the eye of many. What role will China’s digital RMB have in this new world? Most importantly, what it means for the dollar (if anything)? One thing is indisputable: in a decoupled world, there will be a higher demand for the RMB than ever before. Whether China’s e-RMB becomes a game-changer and tests the dollar’s rank as apex currency, remains to be seen. The odds of success, however, are raised considerably, given that China is the world’s largest exporter. China’s CBDC is a new form of payment that is under test in four Chinese cities right now. It is essentially a second generation of digital payment. The first were the wildly successful mobile payment apps Alipay and WeChat pay. Between them, these two giants now control some 90% of mobile payments in China, and 85% or all payments in the country. It’s hard for many to envision a cash-free society or one without credit cards. In China, for most residents’ daily lives, this has already arrived. 6
I call these mobile-payment apps “first-generation” technology because they rely on debit cards and traditional banks accounts for real-time payment. Payments are carried by the mobile payment company’s network and made when account balances in the two accounts are updated. In second-generation CBDC based technology, digital money will move directly from person to person. No bank, no Visa, no Mastercard, no mobile payment company required. CBDCs aren’t a representation of account balances, (as is also the case with Google and Apple Pay), so much as actual digital money stored on one’s phone. If this sounds like a revolution, it is. CBDCs match the convenience of their close cousins cryptocurrency, but have the added benefit of being “real money.” This will prove wholly disruptive to card companies, whose money-transport services will no longer be needed. While China’s CBDC will be applied first for domestic payments as a substitute for cash, its future use in international trade payments is what is causing concern among observers overseas. China’s CBDC is the first government-controlled digital challenge to the SWIFT funds transfer system. With China’s CBDC, there will be no need to use SWIFT. China’s digital payments will be out of sight from the US, sanctions, and the banking system. It is a change in paradigm, amid accusations that recent US policy has effectively “weaponized” SWIFT.
