China speeds up digital currency trials to blunt US financial hegemony

By Li Xuanmin Source:Global Times Published: 2020/6/3 15:40:14

People walk by a sign of Blockchain Summit during the Mobile World Congress Shanghai 2019 in June. Photo: IC

Contrary to market expectations, China may not launch its central bank-backed sovereign digital currency DC/EP this year, industry insiders said. But relevant tests are running in a full swing as there is a widespread sense of urgency amid Beijing's efforts to challenge the US-dominated global financial order. 

Washington's potential threats to recklessly cut Chinese financial institutions from the SWIFT payment system on the heels of a national security law to safeguard the Hong Kong Special Administrative Region are believed to speed up the process. 

Some insiders predict that DC/EP pilot tests could be carried out in more cities such as Shanghai and in South China's Hainan Province in 2021. 

"On the global stage, dissatisfaction toward the US is mounting. And at the same time, the US economy faces a steep and protracted contraction. So it's good timing for China to weigh in with its DC/EP project and unite other partners to create another financial system to counter US unilateralism and hegemony," Cao Yin, a Beijing-based blockchain industry insider, told the Global Times on Wednesday. 

As part of broadsides targeting China, US President Donald Trump announced on Friday that his administration would begin eliminating policy exemptions that provide Hong Kong with special privileges. Echoing the arbitrary move, some US politicians have reportedly threatened to cut certain Chinese banks from the SWIFT international payment system.

The US dollar system is underpinned by US-dominated financial infrastructure, including SWIFT. 

"The DC/EP will create another financial realm that is parallel to SWIFT. And unlike SWIFT, transactions via DC/EP will be point-to-point, which could allay participating countries' concerns of being sanctioned by the host country, which in the case of SWIFT is the US," Cao said. He noted that if China's digital currency is rolled out, it will make the US lose its "nuclear" bargaining chip and recast China-US relations will lean more toward the Chinese side. 

But industry insiders told the Global Times it is unlikely China will see the large-scale application of DC/EP in 2020, partly because the digital currency project involves the interests of many parties including fintech ventures and commercial banks and it will take some time to balance those interests. 

Yi Gang, governor of the People's Bank of China (PBC), said in late May that internal pilot tests of the central bank's digital currency are being carried out in four cities including Shenzhen in South China's Guangdong Province and the Xiongan New Area, and will also be carried out in scenarios for the 2022 Winter Olympic Games in Beijing.

A source close to the DC/EP launch who spoke on condition of anonymity told the Global Times that tests for the Winter Olympics will likely focus on foreign tourists' digital currency payments, an important step for the cryptocurrency's global expansion. 

"For foreign tourists, the digital wallet could be either downloaded from an app store or included in the SIM cards provided by Chinese telecoms carriers," the source said. 

Analysts predict more Chinese cities will join the pilot tests next year to lay the foundation for the currency's official launch. 

Shanghai and major cities in Hainan where foreign trade volumes are significant and capital flows are abundant may be candidates for the next round of its tests, according to Cao.

Chinese authorities on Monday announced a plan to transform Hainan into a free trade port. Blockchain, the underlying technology for China's DC/EP project, is mentioned at least six times in the plan.


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