Page 8 - South China Business Journal
P. 8
PTH able to track all digital cash in circulation, making
it much harder for money laundering, tax evasion,
On the wallet management page of CCB’s official and terrorist financing.
app, the digital RMB wallet would have a wallet ID, According to Xinhua, the state media, China’s DCEP
a current balance, a balance limit, a single payment will adopt the principle of “controllable anonymity”.
limit, a daily cumulative payment limit, an annual That means, when trading with DCEP, both parties
cumulative payment, a daily remaining amount, can be anonymous to protect the public’s privacy,
and an annual remaining amount. but when it comes to combating corruption, money
The bank’s user agreement detailed that there laundering, tax evasion, and terrorist financing, the
would be four levels of the digital RMB wallet with state banks can still track the trading information.
varying balance and payment limits. It also revealed The central bank could also control the flow
that the functions of the digital yuan wallet would direction of the state funds or financial subsidies.
include payment, redemption, transfer, and credit For example, if it issues the DCEP to a commercial
card repayment. bank for lending to small businesses, it could ensure
Possible impact of digital currency on that the money is activated only once transferred to
Chinese society and businesses a small firm.
China is increasingly transforming into a cashless Besides, the DCEP can create conditions for
land – last year, mobile transactions reached RMB unconventional monetary policy. For instance,
347 trillion (US$49 trillion), accounting for four China might find it easier to make nominal interest
of every five payments. Amid the technological rates negative. Normally, when the central bank
upheaval in its financial system, the country leads a imposes negative interest rates on bank deposits,
solo effort on exploring the CBDC, starting as early residents would withdraw the deposit to avoid
as 2014. capital devaluation. But with the DCEP, negative
It’s still hard to predict how soon the DCEP could interest rates could apply to digital cash itself
supersede or complement the payment services by programming. On the other hand, the central
provide by Alibaba and Tencent, China’s two tech bank could also channel digital cash more directly
giants – their digital wallets have over 1 billion to residents’ electronic wallets to stimulate the
users and account for half of in-store payments and economy.
nearly three quarters of web sales in China. Internationally, the DCEP may, at some point
However, once successful, this will be touted as a in the future, help China to be able to transfer
big win for the government as the major economy digital money across borders without needing to
with the first sovereign digital currency. With such go through a dollar-based international payment
a centralized currency, the government would be system like SWIFT. With the US dollar dominance
and its intentions to close the liquidity taps on
specific countries or institutions or people, such
as via targeted sanctions, China appears to be
building its own private trading channels with some
countries.
The Chinese government is yet to confirm a proposed
timeline for the roll-out of the digital yuan. But it is
all but certain that the DCEP will usher in a new
financial era in China. Hi-tech businesses as well
as foreign-invested retailers, financial institutions,
and mobile app developers in China need to watch
its progress closely to track how this will impact
their scope of business, affect user behavior, and
trigger any risk exposure.
5 AMCHAM SOUTH CHINA
it much harder for money laundering, tax evasion,
On the wallet management page of CCB’s official and terrorist financing.
app, the digital RMB wallet would have a wallet ID, According to Xinhua, the state media, China’s DCEP
a current balance, a balance limit, a single payment will adopt the principle of “controllable anonymity”.
limit, a daily cumulative payment limit, an annual That means, when trading with DCEP, both parties
cumulative payment, a daily remaining amount, can be anonymous to protect the public’s privacy,
and an annual remaining amount. but when it comes to combating corruption, money
The bank’s user agreement detailed that there laundering, tax evasion, and terrorist financing, the
would be four levels of the digital RMB wallet with state banks can still track the trading information.
varying balance and payment limits. It also revealed The central bank could also control the flow
that the functions of the digital yuan wallet would direction of the state funds or financial subsidies.
include payment, redemption, transfer, and credit For example, if it issues the DCEP to a commercial
card repayment. bank for lending to small businesses, it could ensure
Possible impact of digital currency on that the money is activated only once transferred to
Chinese society and businesses a small firm.
China is increasingly transforming into a cashless Besides, the DCEP can create conditions for
land – last year, mobile transactions reached RMB unconventional monetary policy. For instance,
347 trillion (US$49 trillion), accounting for four China might find it easier to make nominal interest
of every five payments. Amid the technological rates negative. Normally, when the central bank
upheaval in its financial system, the country leads a imposes negative interest rates on bank deposits,
solo effort on exploring the CBDC, starting as early residents would withdraw the deposit to avoid
as 2014. capital devaluation. But with the DCEP, negative
It’s still hard to predict how soon the DCEP could interest rates could apply to digital cash itself
supersede or complement the payment services by programming. On the other hand, the central
provide by Alibaba and Tencent, China’s two tech bank could also channel digital cash more directly
giants – their digital wallets have over 1 billion to residents’ electronic wallets to stimulate the
users and account for half of in-store payments and economy.
nearly three quarters of web sales in China. Internationally, the DCEP may, at some point
However, once successful, this will be touted as a in the future, help China to be able to transfer
big win for the government as the major economy digital money across borders without needing to
with the first sovereign digital currency. With such go through a dollar-based international payment
a centralized currency, the government would be system like SWIFT. With the US dollar dominance
and its intentions to close the liquidity taps on
specific countries or institutions or people, such
as via targeted sanctions, China appears to be
building its own private trading channels with some
countries.
The Chinese government is yet to confirm a proposed
timeline for the roll-out of the digital yuan. But it is
all but certain that the DCEP will usher in a new
financial era in China. Hi-tech businesses as well
as foreign-invested retailers, financial institutions,
and mobile app developers in China need to watch
its progress closely to track how this will impact
their scope of business, affect user behavior, and
trigger any risk exposure.
5 AMCHAM SOUTH CHINA
