“China’s CBDC will give users large and small access to a digital ecosystem for global trade, making transacting with China as easy as buying on Amazon or Alibaba,” Richard Turrin, a Shanghai-based fintech consultant who recently published “Cashless: China’s Digital Currency Revolution,” told Forkast.News.
My take on this story published on Linkedin:
Foreign users of China’s CBDC will not need a local RMB account according to the PBOC, here’s how it will work.
This is a great article by @Timmy Shen and @Ningwei Qin of @Forkast, who kindly used me as a source within the article.
Here’s how the offshore wallet will work from my book Cashless:
China’s new e-CNY will fundamentally change international trade by taking banks and SWIFT out of the currency transfer process. It will make cross-border transfers of e-CNY as easy as making a payment on Alipay.
A dream for many smaller importers who will now be able to buy from China without the wait and expense of using bank transfers. That foreign users don’t need an RMB deposit account makes perfect sense and shows how the PBOC is trying to make the e-CNY easy to use.
The easiest way to get foreign users signed up and using a digital yuan wallet is to have local banks handle the required KYC process. This means that the PBOC will authorize certain local banks to validate the identity of new users. This makes sense because the PBOC is in no position to understand local KYC and has no local staff to provide native language services.
Now to make this all work the PBOC will set up currency conversion systems with these banks so that the wallet holders can convert local currency directly to digital yuan eliminating the need for an RMB account. This system will likely run in parallel with existing FX systems.
To get the e-CNY system up and running in another country, the PBOC will first need to work with its central bank to get it approved for use in the country. This is more than just a formality. The PBOC has a clear policy of “no detriment, compliance, and interconnectivity.” This is critical because the PBOC needs to ensure that the digital yuan is not detrimental to the country using it. CBDC is not like crypto that trades without regulation.
CBDC and crypto represent a real potential problem for developing nations. In cases where the digital yuan or a crypto are seen as a better currency than the native currency they can cause currency flight and further destabilize weak economies.
Yesterday I wrote how crypto is earning its keep in Afghanistan where all financial systems are non-functional. There are many other marginal countries who are trying and what happens if the e-CNY or a crypto destabilizes them. This is not theoretical Turkey, Indonesia and Nigeria have all unsuccessfully banned crypto for this reason.