China's digital currency aims to leave the rest of the world in the dust
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Illustration: Sarah Grillo/Axios
China is already test-driving the future of finance while the rest of the world is stuck trying to get its learner's permit.
What's happening: Over the past two weeks Chinese authorities in cities like Shenzhen and Chengdu have given out the country's brand new digital renminbi currency and are urging even faster rollout of the token nationwide.
- The country's central bank has distributed the currency to "lottery" winners who are reportedly spending it at thousands of retailers, including local supermarkets and pharmacies and even Walmart.
What they're saying: "We must serve dual circulation with fintech-led innovations," Chen Yulu, deputy governor of the People’s Bank of China, said in an article published on Sunday in the PBOC-run China Finance magazine.
- "We must build an independent and high-quality financial infrastructure … quicken the pace of research and development of the central bank digital currency, and ensure that pilot tests show [the digital currency] is controllable and safeguards the security of payments."
On the other side: The Bank for International Settlements and seven mostly Western central banks including the Fed, European Central Bank, Bank of Japan and the Bank of England published a report last week detailing the "foundational principles" and "core features" of a potential central bank digital currency (CBDC) in order to "guide exploration and support public policy objectives."
- None of the central banks committed to pursuing or producing a digital currency as part of the report.
Why it matters: The coronavirus pandemic has accelerated the world's move away from paper money and producing the world's first CBDC could put China in the driver's seat to steer the future of payments and currency.
Between the lines: "If you take the last 250 days what has happened is we’ve gone into a different pace of digital," Charlotte Hogg, CEO of European operations at Visa, said during a panel at the Institute of International Finance's annual meeting Tuesday.
- "Everything that we can see is that people who never used digital payments before are using them. They’re going to continue to use them, particularly as those more vulnerable in our societies continue to shield and it’s going to be ever more important for our recovery for all of our business communities to be able to use forms of digital payment."
Zoom in: Facebook attempted to produce a digital currency that would have been convertible across borders and provided users the opportunity to spend and exchange it, but was rebuffed by U.S. and international regulators concerned about a for-profit company having so much influence on the supply of money.
- That concern is still a driving force behind central banks' efforts — that and a desire to ensure commercial banks aren't left out in the cold once digital payments make many of their services obsolete.
