CBDC why should you care? Because it fundamentally changes the nature of money. And like it or not it uses cryptocurrency technology to achieve this.
Thanks to Waheed Rahman of @EMPASCO the founder of the Innovation Civilization Podcast for this opportunity to chat about CBDC. Frankly this is my most in-depth interview in ages. Waheed read Cashless cover to cover and it shows!
My comments and time stamp:
(00:00) – Intro
(03:22) – Rich’s journey to writing “Cashless: China’s Digital Currency Revolution
(05:17) – Key differences between the Chinese society and the American society
First, Living in China has fundamentally changed my perspective on Asia’s role in the world.
Second, I lived through going “cashless” personally and that is what inspired me to write Cashless. It’s not about being a cheerleader for China but the West is falling behind.
(07:51) – Why has the West fallen behind in terms of major fintech adaption vs China?
The West does not have a unified ecosystem of payment, a superapp. There is a greater depth and availability of services in China than in the West. Payment is free in China because WeChat and Alipay were able to rewire and repurpose the credit card system.
(11:17) – What is the reason behind the rapid FinTech adoption in China? What makes the Chinese FinTech so special?
In 2014 the People’s Bank of China (PBOC) worked with Tencent and Alibaba to license them as banks and launch the payment platforms. Big Tech got banking licenses even though they would compete with state-owned banks! The PBOC recognized they couldn’t do much more with traditional brick-and-mortar banks to reach the unbanked.
(13:30) The tech crackdown is this the end?
When do you cross the threshold from being a tech upstart to being a systemically critical financial institution? Mobile payment is now 3.4 times China’s GDP! Do you need to regulate systemically critical organizations?
(15:56) – What is Central Bank Digital Currency (CBDC)? Why should we care about it?
Because CBDC fundamentally changes the nature of money. Money can be turned into a token meaning that we can send these tokens digitally and no longer need accounts. China’s CBDC doesn’t use a blockchain because it is simply too slow. The US also made the same discovery. China loves blockchain, but not for this use.
(21:28) – Emergence of the early cashless payment systems (QR codes, NFC, etc.)
QR codes allowed people to participate in digital payment for free, it cost them nothing. A vendor could print out a QR code and receive payment without investing in new equipment it was free! Compare this with Apple’s “pay to play” with Apple Pay where you had to buy a new phone to use it.
(27:36) – Advantages of having CBDCs compared to the contemporary FinTech payment solutions (Ali Pay, WeChat pay, Apple pay, etc.) 💣
The big advantage of CBDC is that it will take digital payment far beyond where WeChat and Alipay could ever go. CBDC is designed to go where the payment platforms could not. One example is salary payments. You can’t do that with WeChat and Alipay. Also disintermediation direct P2P payment and financial inclusion!
(34:48) – Crypto maximalist viewpoint vs CBDC 💣
I get it. If you are a maximalist I get it you don’t like fiat. Still how long will it take for the world to abandon fiat currency. During this transition period shouldn’t we have better payment? Should we always pay credit cards?
(36:00) – Disadvantages to having CBDC 💣
The only one worth talking about is privacy. CBDC is software you can get Monero (privacy coin) or you can get the least private software Facebook. So the gov’t isn’t going to give you a privacy coin, but don’t we have the human technology and skill to design a CBDC with reasonable degrees of privacy? Crypto wasn’t built for privacy, so don’t tell me about CBDC!
(38:58) – How would CBDCs change/replace the current money transfer system platform such as SWIFT?
China’s CBDC will not be used to evade sanctions with the war in Russia. SWIFT is going to be challenged by CBDCs in the not too distant future. Tokenization is the key part of CBDC that will allow it to use its own network and stay off of the SWIFT network. Two sides: one side says sanctions are just and necessary, the other thinks they are not. All CBDCs, not just China’s will be means of avoiding sanctions. China’s CBDC will have a blockchain logistics system that will boost the utility and use of the digital yuan.
(50:36) – Impacts on western policies
Overusing sanctions is a big problem. They are a blunt instrument that affect many who are not related to the sanctions and cause great hardship.
(53:24) – When will CBDCs get launched? What stage is it in right now?
The e-CNY is not fully launched yet, it is in trial. Usage numbers are low because it isn’t accepted at many stores yet.
(56:03) – How is China breaking the tech industry?
There is the sense that China is “breaking” its tech industry. In fact, China is learning from the US that big tech is not the most innovative. That’s why it is curbing big tech and fostering hyper-innovative small companies.
(59:42) – How should policymakers in Emerging/Frontier markets think about CBDCs?
Watch developing nations because the risk-reward balance for CBDC is heavily weighted toward reward! The opportunities for financial inclusion in developing nations is clear and has a direct impact on GDP!