The CEO of Sino Global Capital thinks that the new digital yuan and CBDCs will challenge global USD payment systems
Matthew Graham, CEO of Sino Global Capital, recently told Boxmining founder, Michael Gu, that the upcoming digital yuan will be aimed at USD hegemony, not Bitcoin.
The digital yuan is part of a new central bank digital currency (CBDCs) that China is expected to roll out over the coming years.
According to Graham: “Swift, CHIPS, Fedwire (…) they’re antiquated, they’re expensive, they’re slow. It’s 2020 and we have transactions that take three days to clear and that are far more expensive than they should be. All of these technologies that underpin much of the USD-centric global economy are really showing their age. So that’s a big opportunity.”
The USD-based global financial system has been in place for many decades, with arguably little competition to spur new innovation. China’s CBDC could, therefore, be offered to trading partners as an alternative to ageing USD clearing platforms.
China’s digital yuan has potential
With basically no competition in the marketplace, USD-based systems like SWIFT have remained unchanged for many years.
Unlike modern clearing systems, like Visa, SWIFT can take days to deliver money from one country to another, regardless of the fact that it is a 100% digital transaction. The DCEP is expected to be much faster than existing systems, and will sidestep the established Western financial system entirely.
Graham commented: “if you’re approaching this (DCEP) from a crypto or blockchain framework, I think you’re going to really have a hard time understanding what it is and what and why it’s so important.”
The chairman of the China International Economic Exchange Center mentioned this aspect of DECP in a previous statement, “DCEP can achieve real-time collection of data related to money creation, bookkeeping, etc, providing a useful reference for the provision of money and the implementation of monetary policies.”
The politics of global settlement
If a CBDC is able to make an impact on how people and institutions move money, it may become another contentious issue between the US and China. Both global powers are already fighting over trade, Taiwan, Hong Kong and global health issues — so a competing global settlement system may further upset US-China relations.
One challenge a CBDC could face is one of international acceptance. Chinese client states, who rely on China for financing could be persuaded to accept the digital yuan as payment. However, it remains to be seen if third-party economic blocs, like the EU, are as willing to do businesses outside of the established system.