Digital yuan decimates offshore deposits
Smart logistics breeds trusted trading
May 8 2029
For the past 10 years, China has been reinventing the financial side of global trade, using smart logistics to automate shipping contracts, and digital cash for settlement.
As early as 2019, the People’s Bank of China had been testing a digital yuan, using Ant Financial’s mobile payments platform. By 2022, it was ready to roll it out domestically.
From there, it was just a matter of time before the e-CNY became the currency of choice when trading with China. But that’s only part of the story.
Smart logistics, seamlessly connecting supply chain nodes and physical storage and transport, provides early warnings for active risks and verifies the production, shipping, and storage of goods, every step of the way. A sovereign digital currency, backed by the central bank, simply enables the multitude of payments to be automated too.
Which meant, of course, that there was no longer a need for large offshore deposits of reserve currencies — such as dollars and euros — to guarantee the process. China was not only the first to roll out its digital yuan, it’s also the world’s largest exporter; it was inevitable that the e-CNY would become not a reserve currency, but the premier currency for enabling smart logistics. And the digital yuan was integrated with SWIFT, right from the start.
Now traditional banks for international trade financing find that their deposit base has been whittled away, white-anted over time by CBDCs — central bank digital currencies. We’re talking tens of trillions of dollars that are simply no longer required to be held in escrow. All the trading partners are overjoyed that friction and inefficiencies have been removed, and end-customers are the real winners as unnecessary costs have been taken out of the final price.
But for the banks and their investors, and the intermediaries who benefited from the decades-old international banking system, it’s a matter of declining fortunes, and in some cases: Goodbye! — Date published: May 6 2021
CHINA LAUNCHES E-YUAN
March 15 2015
China’s monetary authority has done it again. After surprising everyone but a small group of futurists by partially adopting a gold standard to back its national currency, China’s launch of the eYuan has set the cat among the virtual currency pigeons.
A decade ago, in 2005, the Chinese yuan (CNY) was pegged at 8.28/$ before being abruptly allowed to “float” upwards, but under strict control of the People’s Bank of China, the monetary authority. By June 2012, relaxations of the “trading band” for the renminbi/yuan (confusingly referred to as RMB or CNY in the same document) saw the yuan trading at 6.35/$, appreciation of 30% in seven years.
But with such a strong currency, and trillions of dollars in foreign reserves, China had been quietly buying up gold. In 2013 it stunned the forex markets by announcing a free float for the yuan — and by the way, it was backed by gold to the tune of 18% of issued currency. Within weeks, the CNY/$ rate was at 5.05 and trading nations began to see the yuan as the reserve currency of choice.
Long the ubiquitous cash currency of African states, the dollar fell from grace overnight, particularly as most foreign trade was with China anyway. Now it was RMB being traded freely on the streets of Lagos, Luanda and Lusaka.
But the announcement yesterday of the launch of the eYuan will herald a new epoch in global currencies. Freely tradable online and on smartphones, China’s electronic currency is not only backed by gold, but convertible without commission into any major currency worldwide — by the People’s Bank of China itself.
Why would anyone want to use any other currency for electronic transactions? Reaction from the European Central Bank and US Treasury has been muted. They are still considering their position; but really they have no choice but to accept the new paradigm. — Date published: August 23 2012