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A Chinese scholar recently told Russia’s Sputnik News that China’s central bank’s digital currency (CBDC) can achieve cross-border payments without settlement risk.

Due to the Chinese government’s promotion and rapid development of related technologies, China may become the first country in the world to issue legal digital currency. The Ministry of Commerce recently announced that it will carry out digital RMB pilot programs in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and the central and western regions where conditions permit. The People’s Bank of China (PBOC) will formulate a set of policy support measures.

Regarding the cross-border circulation of digital currency, Liu Yihua, a researcher with the Taihe Institute, a government affiliated think tank, said that traditional currency cross-border circulation is mainly reflected in international trade settlement under the current account, in international investment and financing under the capital account, and in international reserves. This is usually done by domestic and overseas banks through the international CLS FX clearing system. Although this model meets the needs of cross-border payments, it lengthens the cross-border payment chain. At the same time, cross-border transactions under this model are highly dependent on bank accounts. Taking RMB cross-border payment as an example, overseas banks need to connect to domestic correspondent banks, clearing banks, domestic fund custodian banks and other institutions to conduct RMB business. Overseas residents and overseas institutions need to open RMB deposit accounts to complete RMB cross-border payments.

Liu said that the central bank digital currency (CBDC) issued by the PBOC belongs to the monetary base (M0), which is the central bank’s direct liability to the public (including overseas residents and institutions). The public owns and uses CBDC by opening a CBDC electronic wallet. In this process, the public directly establishes a creditor-debt relationship with the central bank. For the central bank, domestic and overseas (including offshore) CBDC wallets make no difference; for the public, any two CBDC wallets can initiate peer-to-peer transactions, and there is no difference between domestic and overseas (including offshore). For operators of CBDC electronic wallets such as commercial banks, they only perform management functions, and the CBDC in the electronic wallet does not enter their balance sheet. In CBDC transactions, the flow of funds only involves both parties to the transaction. Because CBDC uses a loosely coupled account model (transfers can be realized without a bank account, and the transaction is settlement) to complete the transaction, compared with traditional cross-border payments, CBDC can realize cross-border payment with almost no settlement risk.

Liu pointed out that, for foreign residents and institutions to participate in CBDC cross-border payments, they only need to open a CBDC wallet. As the requirements for opening a CBDC wallet are much lower than opening bank accounts (especially offshore bank accounts), it is beneficial for overseas residents and institutions to own and use CBDC.

Source: Sputnik News, August 27, 2020
http://sputniknews.cn/china/202008271032040233/

According to a report from the blockchain analytics firm Chainalysis, over the past 12 months, over $50 billion worth of cryptocurrency has left China. Analysts claim that the yuan’s fluctuating valuation over this year and tensions amid the ongoing U.S.–China trade war could be spurring local investors to evade capital controls. Beijing bars citizens from moving more than the equivalent of $50,000 out of the country each year.

Tether (USDT) in particular — could be playing a key role. Since Beijing’s 2017 ban on the direct conversions of the yuan to cryptocurrency, the U.S. dollar-pegged stablecoin Tether has served as a popular stand-in for fiat for traders in the Chinese market. In the East Asian market, over $18 billion worth of Tether was moved to addresses based in foreign jurisdictions over the past year. How much of this reflects capital flight remains difficult to establish conclusively.

While yuan-USDT trades are, strictly speaking, also prohibited, OTC (over the counter) brokers continue to sell the stablecoin to enable traders to lock in their gains from crypto trades without worrying about price volatility. In June of this year, Tether outflanked Bitcoin to become the digital asset that East Asian addresses received the most.

The government has meanwhile cracked down on routes for offshoring capital via foreign real estate investments and other assets, leaving cryptocurrency as a possible alternative.

Other contributing factors include uncertainty as to how Beijing’s forthcoming national cryptocurrency will impact the private digital asset market. Chainalysis suggests that this may be driving China’s cryptocurrency community “to move portions of their holdings overseas.”

Source: Central News Agency, August 22, 2020
https://www.cna.com.tw/news/acn/202008220203.aspx

China’s state-owned banks such as the Agricultural Bank of China and China Construction Bank are testing the operation of digital currencies. Scholars believe that the Chinese model of the digital currency actually enables the central government to exert full control over personal wealth, which means returning to the era of a planned economy.

Si Ling, a financial scholar from Shandong University told Radio Free Asia (RFA), “The purpose of China’s vigorous promotion of digital currency is to manage its fiscal revenue in a more organized manner. With the deterioration of Sino-US relations and China’s foreign trade situation, the government will focus on fiscal revenue. In the past, many people used cash transactions to evade tax collection.”

Si believes that, if the Chinese government fully implements digital currency, “transactions will be completely under government supervision, which is conducive to the growth of government revenue. If digital currency is implemented, it may be a public-private partnership in the 21st century. In other words, private wealth can become public owned overnight, if the government chooses to do so.”

Dong Yongqi, a businessman from Shanxi province, told RFA that once the Chinese people start to use digital currency, their personal interests and their privacy will be infringed upon. “For the common people, it will do more harm than good. Most people read the propaganda and don’t understand the invasion of personal privacy that occurs with digital currency. The digital currency is the preparation for returning to the planned economy.”

Dong discussed the fundamental difference between China’s digital currency and that of Western democracies. “The digital currency of a free country by nature uses the blockchain technology and is decentralized, but our country’s digital currency has been centralized. The central bank is in charge.”

Chinese economist Hu Xingdou told RFA that China’s so-called digital currency is not a digital currency in the real sense: “It should be called electronic currency. It is very different from digital currency in terms of privacy and traceability. In other words, digital currency protects personal privacy. Other people, even the government, control no information.”

Caijinglengyan, an overseas social media account, commented that China’s digital currency is to prepare for the planned economy! Its characteristic is the control over currency use and material distribution. One can consider digital currency such as food stamps, meat coupons, travel passes, transportation documents, and permits for big-ticket purchases in the digital age.

Source: Radio Free Asia, August 17, 2020
https://www.rfa.org/mandarin/yataibaodao/ql1-08172020060447.html

A government report showing the progress of summer grain acquisitions, released on Wednesday August 12, showed that wheat purchases in regions including Hebei, Jiangsu, Anhui, Shandong, and Henan dropped by 18 percent. However, the state media in Jiangsu and Henan announced “good news.” The media claimed that the summer grain harvest “stayed at the highest level in history.”

In the past few months, disastrous events have occurred in major agriculturally productive regions in China and crops have seen severe damage. However, Zhou Xuewen, the deputy Minister of Emergency Management and deputy Minister of Water Resources, boldly predicted at a recent press conference that the year 2020 will be a great year of harvest. He stated, “The year of flooding is often the year of harvest and will be the harvest of (double-crops and) late rice. Why? The water conditions are better, and the soil is fertile. Our disaster relief measures and our post-disaster recovery and reconstruction, along with our strengthened restoration and planting management, as well as some technologies being used, mean that I don’t think food will be affected this year.”

The website of the National Food and Strategic Reserves Administration published the progress of the summer grain purchases. As of August 5, the total purchase of wheat in the main producing areas was about 42.85 million tons, a drop of about 9.38 million tons, or 18 percent, on a year-on-year basis.

Between January and July, China suffered from the COVID-19 pandemic and severe flooding. Hubei, Anhui, and parts of Jiangsu were flooded. However, state media in those regions claimed that there was a grain harvest. The Jiangsu survey team of the National Bureau of Statistics released data on July 14 showing that the total output of summer grain was 25.2 billion jin (12.6 million tons), an increase of 3.6 percent over the previous year. The Henan team released data on July 17, showing that the total output of summer grains in the province reached 75.1 billion jin (37.5 million tons), around the highest level in history.

He Huiling, a farmer in Luoyang, Henan, told RFA that the drop in the purchase of summer grains is related to the reduction in grain production and the over-exploitation of arable land. “Excessive (real estate) development and excessive land acquisition have left many people with little land to grow crops. Farmers make a living by purchasing food. Many of our local lands have been confiscated.”

Another villager in Nanyang, Henan, told RFA that he does not have any residual food at all. The central government is advocating food conservation because it is worried about a food shortage, “Recently the central government has spoken out about saving food. In our hometown, there is no food in the house. The main reason is that there are fewer farmers. Another reason is the reduction in arable land.”

Source: Radio Free Asia, August 13, 2020
https://www.rfa.org/mandarin/yataibaodao/jingmao/ql1-08132020062337.html

According to China’s English language official media CGTN, four major state-owned banks, including the Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, and the Agricultural Bank of China, have started testing digital currencies in Shenzhen, a signal of the upcoming introduction of the digital renminbi (the name of the Chinese currency).

Years ago, China formulated a plan for the central bank to issue legal digital currency. Since 2014, the government has planned to replace cash with digital currency, but has yet to announce a clear time table. On August 3, the People’s Bank of China (PBOC) announced that it would “actively and steadily advance the research and development of the legal digital currency” in the second half of the year. Back in 2016, Zhou Xiaochuan, then governor of the PBOC, China’s central bank, stated that he planned to spend 10 years to digitize the banknotes which have been in use in the country for more than 800 years.

The PBOC’s digital renminbi is temporarily named “DC/EP” (the abbreviation of “digital currency/electronic payment”). At present, the employees of some state-owned banks have begun to use it for transfers, payments, and other transactions.

Users, after registering in a mobile app, can use a digital wallet to recharge, withdraw, transfer and scan QR codes to pay. Transfer can be done only based the other party’s mobile phone number. The PBOC is studying a scenario of money transfer without a network.

Didi Chuxing, the country’s app-based transportation services giant, said last month, that it established a “strategic cooperation agreement” with the PBOC. With 450 million Didi users, the PBOC hopes to use this huge platform to test the application of digital renminbi in the field of smart travel. In addition, it is reported that Meituan, a food delivery platform that generates billions of dollars of daily transactions, is currently negotiating with PBOC on digital renminbi.

According to Mu Changchun, director of the Digital Currency Research Institute of the PBOC, who is regarded as one of the leaders of China’s digital currency plan, “As long as you and I have a DC/EP digital wallet on your mobile phone, you don’t even need the Internet. As long as your phone has power, you can transfer the digital currency from one person’s digital wallet to another by touching the two phones.”

In April this year, China announced that it will conduct internal testing of digital currency in four main locations — Shenzhen, Suzhou, Chengdu, and Beijing’s new satellite city Xiong’an. A PBOC official disclosed that a larger scale test will also be conducted during the 2022 Beijing Winter Olympics to further evaluate the capabilities and risks of digital currencies through large-scale cross-border transactions.

Although the new currency is to be issued by the PBOC, ordinary people still need to deal with state-owned and commercial banks. In April, a screenshot of the digital currency wallet application test by the Agricultural Bank of China was circulated on the Internet. The screenshot is said to show a variety of functions, including QR code payment, remittance, currency exchange, and “touch” transfers. PBOC officials said that the digital currency will adopt a two-tier operating system. The PBOC will interface with commercial banks, and the commercial banks will be directly interfacing with ordinary people.

Although Beijing’s enthusiasm for digital currency began a few years ago, it is the Bitcoin market and the “Libra” digital currency plan that the US technology giant Facebook initiated that accelerated the process.

Mu Changchun said frankly in an open class, “If Libra is accepted by everyone and becomes a common payment tool, then it is completely possible for it, ultimately, to develop into a world-class super-sovereign currency.”  “In order to protect our currency sovereignty and legal currency status, we need to plan in advance.”

The digital renminbi being tested is the equivalent of paper currency in value and they may be exchanged freely with each other. Unlike Bitcoin and other encrypted digital currencies based on blockchain technology, the PBOC is the currency issuer and requires real name user registration. Senior officials at the PBOC stated that, after the introduction of digital currency, payment data will be anonymous, but this anonymity is “controllable” and the government and banks still have the right to inquire.

Wan Hui, the founding partner of Primitive Ventures, a blockchain investment institution, wrote in an article that, in the traditional sense, the central bank can only directly control the creation and destruction of the base currency, but can only exert indirect control over the broader money supply driven by credit flows. If digital legal tender is issued, the central bank may bypass commercial banks and regain direct control over currency creation or supply. She believes that this will allow China’s central bank structurally to centralize the power to formulate and implement related monetary policies, and it can affect social and economic activities at a more granular level.

Source: BBC Chinese, August 11, 2020
https://www.bbc.com/zhongwen/simp/business-53722841

On August 11, Xinhua News Agency reported that Xi Jinping, the General Secretary of the Chinese Communist Party, had recently issued an “important instruction” on food waste. Xi pointed out that the phenomenon of food waste is shocking and distressing! He added that, despite the harvest of the country’s grain production in recent years, it is necessary to have a sense of crisis for food management. The impact of the global corona virus epidemic has sounded the alarm. Xi Jinping emphasized the need to strengthen legislation and supervision, take effective measures, and establish a long-term mechanism to stop food waste.

It is a rare phenomenon that, in recent weeks, the supreme leader of China has repeatedly mentioned food management.

Source: People’s Daily, August 12, 2020
http://paper.people.com.cn/rmrb/html/2020-08/12/nw.D110000renmrb_20200812_1-01.htm

The 21st Century Business Herald reported that China is conducting large-scale internal testing of a digital wallet application at four major state-run commercial banks: the Industrial and Commercial Bank of China, the Bank of Agriculture, the Bank of China, and China Construction Bank.

Banking sources said that, in early August, employees at these banks in Shenzhen started internally testing the app to transfer money and make payments.  Other banking sources said that tests involve payments of CCP membership dues, union fees, and other expenses. Tests are being conducted at their institutions. While tests are primarily conducted in Shenzhen, the app is not available for public download.

To register the app, one needs to open a digital wallet in the four major banks. The digital wallets are linked to the individual’s bank accounts and one can recharge funds into the wallet using online banking or credit cards.

On August 3, 2020, the central bank, the People’s Bank of China (PBOC), said the country should actively and steadily promote the development of a state digital currency. PBOC has led the development of the digital currency in an effort to promote the RMB as an international currency and to reduce dependence on the U.S. dollar. The digital currency is still in the internal R&D and testing stage under high confidentiality.  There is little information about a launch timetable.

Source: Sina.com, August 5, 2020
https://tech.sina.com.cn/i/2020-08-05/doc-iivhuipn7039456.shtml