Various countries are working on the digital version of their sovereign countries. More than 60 countries are presently working on it and their progress can be mapped to various stage of the developments, which starts from research stage to proof of concept, to pilot version to final launch.
China has announced the proposed launch of its digital currency, known as Digital Currency Electronic Payment (DCEP), in the winter Olympics, scheduled in Feb 2022. Previous year it launched pilot version of the digital currency in various cities. It has successfully tested the pilot on thousands of Merchants, Customers, including key Banks. China started the work in digital currency in 2014 and are set to launch the world’s most ambitious fintech project in 2022.
It has tested cross border transaction with Honk Kong, BIS, UAE, Thailand. For enabling the cross-border transaction ecosystem between different digital currencies, Hong Kong Monetary Authority and the Bank of Thailand created a platform, known as Multiple CBDC (mCBDC) Bridge. People’s Bank of China and the Central Bank of the United Arab Emirates are member of it and BIS has also partnered to test the settlement of cross border transaction. Recently Swift has also set up JV with Chinese central bank for cross border payments.
China is confident that Digital currencies will not require Dollar as the reserve currency and hence will not be solely dependent on SWIFT for Global payment messaging. China exercises a huge influence on number of countries. It’s the world second largest economy. It has projects under Belt and Road Initiative (BRI) in more than 70 Countries and is developing ecosystem for digital cross border transaction. All these together creates an opportunity for digital yuan to be a strong contender for dollar. China can gain from the first mover advantage and can influence the Global Financial Order.
People are asking, what is US Doing? Pushed by the potential treat from Digital Chinese Currency and emergence of Bitcoin as a main stream asset, Fed Chair, Jerome Powell, announced ,earlier this year that the Fed will be engaging with public on Digital Dollar. Fed is working on a project with MIT for digitisation of USD. US has realised the strategic threat; it may be subjected to if any of the competing Nation leverage significant advantage in digital currency space. This is coming at a time, when technologies are available to replace the SWIFT. Two countries may not be needing US permission to transact in Dollar, using the SWIFT Network. China anticipated much in advance and have started to create a digital bridge for global transaction.
European commission is also working on digital version of EURO. Japan, UK, Sweden, Australia, all are working on their own version of Digital Currency. Australia, Malaysia, Singapore and South Africa have also announced sharing a common platform for testing the settlement of cross border transaction.
Money is changing shape. Digitization of money will be more inclusive for the communities but may also influence the structure of Global Financial Markets and Geo-Politics. Currency leadership may be change ranking or at least be threatened. First mover Nation will have significant influence on the Global Trade. It’s the time for Indian Policy makers to start serious debate on what we can miss as a Nation, if we are not a key contender in the Digital Currency Race.
Bureau Galactik Views