China, Singapore Look Ahead to CBDC Future at World Economic Forum

28 January 2021

Financial authority figures from China and Singapore offered a glimpse at how the international roadmap for central bank digital currencies (CBDCs) might play out, with the suggestion of an interoperability deal between the nations. 

Moderating a virtual World Economic Forum (WEF) panel on the impact of CBDCs, CoinDesk Chief Content Officer Michael Casey asked what the plan is for the digital yuan in terms of how it fits into China’s international strategy.

The future of the digital yuan will largely be decided by the market, said Zhu Min, chairman of China’s National Institute of Financial Research, pointing to the influence of payment systems, capital flows and currency exchange.

“Also, I think it depends on the countries and governments’ agreements,” said Zhu. “So, let’s say if Singapore was willing to have the Chinese digital currency moving to Singapore and China was willing to accept the Singapore digital currency, maybe the two countries can sign a deal to work on those things.”

On the subject of the internationalization of the renminbi and giving it a great role in commerce, Casey asked if a digital yuan would give China a better opportunity to compete with the U.S. dollar’s primacy as a global reserve currency. 

“Firstly, I don’t think there is a plan,” said Zhu, a former deputy governor of the People’s Bank of China. “Second, I don’t think we are going to use an instrument to compete with the dollar. I don’t think the [CBDC] is moving in that direction.”

Those promoting the idea of a digital dollar, such as former U.S. Commodity Futures Trading Commission Chairman Christopher Giancarlo, have pointed to privacy concerns around a Chinese digital currency. So would this be a viable concern in the context of interoperable, cross-border arrangements?

“I really don’t see that as a big issue,” said Zhu. “Obviously, if you go one step backwards, the internal architecture and also the technical networking paths can be very different. So those issues need to be solved when the market gradually develops.”

Sovereign risk 

Also on the WEF panel, Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore, said payment systems demonstrate how international central banks and regulators are actively collaborating. 

“By comparison with some other aspects of international affairs, this area is actually working fairly well,” said Shanmugaratnam.

A problem from the traditional world that lingers over these discussions, however, is the risk that some small and emerging countries face around the “dollarization of their economies,” he added.

“Whenever there is a hint of sovereign risk or worries about a central bank, people start switching into dollars,” Shanmugaratnam said. “That traditional risk will become much more pronounced if you have a digital currency, because it will be that much cheaper and faster to switch from domestic currency assets into foreign currency assets. It’s an issue that we haven’t begun to address.”

Watch the full panel here.

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