Many experts expected that China would begin to respond symmetrically to the United States in accusations of “creating coronavirus” and collapsing the global economy, that is, to say that the United States is to blame for everything.
But the peculiarities of Chinese political thought are that China rarely plays on a field that does not belong to him and where he is forced to play according to strangers and the rules imposed on him.
China, acting within the framework of the old stratagem “the voice is heard from the East, and the blow comes from the West”, that is, acting unexpectedly and unpredictably, it was at the time of the onset of a new economic crisis and attack by the United States that it was starting to test a new electronic currency, which ultimately, it can finally “untie” it from the dollar.
This problem itself – staying in the dollar zone with international payments – has long been a burden for China, and the idea of making the yuan a freely convertible currency has been discussed since the early 2000s. But this would further tie China to the old system of ensuring world currency conversion and, most importantly, would use an outdated, albeit very reliable at that time, settlement system.
China, on the other hand, seeks to ensure that its scheme is primarily beneficial to China itself, and secondly, that it is aimed at the future, rather than using old methods. Initially, the option of switching to settlements exclusively in national currencies, “past” the dollar, was worked out, including this scheme being actively introduced in settlements with Russia. However, it still depended partly on the dollar economy.
For a long time, the Chinese leadership pursued the long-term goal of maximizing the introduction of the renminbi into international payments, which in general, among other things, should reflect the role of the Chinese economy in world processes.
The main objective was to increase the influence of the renminbi as a trading and investment currency. The RMB’s share in global payments for 2017-2019 increased by 28 basis points, as evidenced by the SWIFT report (Society for Worldwide Interbank Financial Telecommunication).
As of August 2019, the share of the renminbi as the global payment currency was 2.2%, despite the fact that in July 2011 this figure was less than 0.5%. And although this can be considered as a very significant increase, we still cannot speak of a serious presence of the renminbi in world payments. As for the number of financial institutions using the yuan for settlements, by July 2019 it increased by 11.31% compared to July 2017, making a total increase from 1989 to 2214.
In general, the situation is all the more paradoxical because the yuan is the only major currency that seeks international recognition, but is not freely convertible and is supported by the efforts of only one country. And it is in this area that the most noticeable imbalances.
If the share of China in world GDP in 2019 amounted to a little more than 19.24%, then the share of the renminbi in international payment flows in August 2019 was only 2.2%. Thus, the gap between the role of the renminbi and the role of China itself in the global economy is enormous.
At the same time, the US dollar and the euro are in a different position. The share of world GDP in the United States in 2019 was 15.1% and in the EU a little over 16.05%. At the same time, the US dollar, occupying a share of just over 39%, remains the most frequently used currency in payments in the world, followed by the euro – a little less than 34%. As a cross-border payment currency, the yuan currently ranks fifth (behind the US dollar, euro, pound sterling, and Japanese yen). This is not least due to concerns about financial stability in China, as well as restrictions on capital flows движение.
Formally, the role of the renminbi grew year by year, but it was not a breakthrough in international markets that happened. Yuan, in fact, was not allowed on them, and it was simply impossible to break through this wall formed in another currency system. He was put forward many requirements, including liberalization of the economy, free trading of the yuan, state non-interference in the national currency and so on.
Therefore, the PRC decided to take a different path: not to try to infiltrate the existing currency system, but to form its own and take an even more radical step to detach it from the dollar: to begin the active introduction of its digital sovereign currency, which has been tested for several years. And although there is officially no implementation schedule, in May-April 2020, the Central Bank of China stepped up the development of the electronic renminbi, which should become the first digital currency created and managed by the state, and one of the largest economies in the world, and not a private corporation.
The time of active implementation was not randomly chosen: it is expected that against the backdrop of the growing popularity of digital payment platforms and as people begin to avoid physical contacts when calculating during the coronavirus pandemic, the cyber currency provided by the state can become very popular.
But there is an important nuance: if the vast majority of cyber currencies provide for the anonymity of holders of funds, which is often used for illegal operations, the Chinese cyber currency should be transparent to the national payment system.
For China, a sovereign digital currency is a functional alternative to the dollar settlement system and hedges the consequences of any sanctions or threats, both at the country level and at the level of individual companies.
The central bank has begun testing its e-currency in several cities, including Shenzhen, Suzhou, Chengdu, as well as in a new special area south of Beijing, Xingang. Also, cyber yuan will most likely be tested in the regions where some events of the Beijing Winter Olympics in 2022 will take place. Cyberyuan in Suzhou will be used to subsidize transport, while Xingang focuses on paying for food and retail.
At first glance, there is no particular innovation here; electronic payments have long been introduced in China and have become quite commonplace for almost every Chinese.
However, before that they were not going to replace the current currency – the yuan, but are simply convenient electronic payment systems. In addition, since data on transactions with existing payment platforms were scattered across several systems that were not connected between the failure, the Central Bank could not control the movement of cash in real time. This time, apparently, we are talking about a complete centralized “digitalization” of settlement tools.
Official Chinese media explained why it is now so important to accelerate your sovereign digital currency. The first is the transformation of the dollar into the “weapon” of American foreign policy.
This is achieved by introducing unilateral punitive sanctions with the threat of expelling companies from the SWIFT dollar settlement system.
Such threats have already been implemented in relation to Iran, Venezuela, and, for example, the Australian government was forced to abandon the agreement with Huawei to service the new railway network, partly due to difficulties in completing financial transfers.
Secondly, the need for China’s actions aimed at countering dollar blackmail and thus providing a choice for investors and business in general. This is the further development of the RMB-based trading settlement system as an alternative to dollar settlements.
Thirdly, it is also obvious where in the future the “digital yuan” will be used for international settlements: these are countries that have joined the Chinese Belt and Way Initiative.
Moreover, in the context of the stagnation of world trade, the introduction of a new payment system can significantly revive trade, giving Chinese “soft power” even more success. But since China is the holder and issuer of the currency, users of the “digital renminbi” will be even more called on to the Chinese financial system.