China speeds up digital currency trials to blunt US edge
Contrary to market expectations, China may not launch its central bankbacked 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.
Insiders predict that DC/EP pilot tests could be carried out in more cities such as Shanghai and 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.
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 to lean more toward the Chinese side.
But industry insiders said that 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 and the Xiongan New Area.