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Digital trade

Central Bank Digital Currency: A boon to the global trading system?


Published 01 June 2021

Central Bank Digital Currencies (CBDC) are gaining traction as dozens of countries explore their potential. With a pilot program well developed in several cities, China’s CBDC program is advancing, with potentially enormous impact. Could digital central bank money facilitate cross-border payments and encourage more trade?

The debate over Central Bank Digital Currencies, or CBDC, have become more prominent among policy makers and in the media since the publication of the Hinrich Foundation’s primer report on the subject. According to the Bank of International Settlement (BIS) more than 80% of central banks around the world are now studying the feasibility of this new form of digital central bank money.

Developments in China are gaining particular attention. China’s CBDC, known as Electronic Payment / Digital Currency (EPDC), has undergone significant trials. Local governments in Chengdu, Shenzhen, and Suzhou have given away millions of dollars’ worth of the digital currency through a lottery. E-commerce giant JD.com also participated in the trial by allowing some purchases to be paid with the digital yuan. The trial has added private bank Zhejiang E-Commerce Bank in Zhejiang province to its roster of seven banks to test the digital yuan.

For cross-border transactions, the People’s Bank of China (PBoC) has combined with the Hong Kong Monetary Authority, the central bank of the United Arab Emirates, and the Bank of Thailand to explore the potential for making CBDC inter-operable between platforms. The goal: to facilitate cross-border payments using multiple digital currencies.

In this paper authored by Hinrich Foundation Research Fellow Stewart Paterson, he explored the potential enormous impact of a broad adoption of China's digital yuan, and how the resulting 'renminbi bloc' will transform the global financial architecture.

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Author

Stewart Paterson

Stewart Paterson is a Research Fellow at the Hinrich Foundation who spent 25 years in capital markets as an equity researcher, strategist and fund manager, working for Credit Suisse, CLSA and most recently, as a Partner and Portfolio Manager of Tiburon Partners LLP.

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