A Bank for International Settlements (BIS) report on the recently concluded cross-border central bank digital currency (CBDC) pilot places China at the fore. According to the report, China emerged as the leader from the efforts featuring the United Arab Emirates, Thailand, and Hong Kong.
The multilateral CBDC effort dubbed mCBDC was the brainchild of BIS, with the pilot running for six weeks and had the participation of 20 central banks. By the end of the initiative, the project had processed $22 million in trade transactions, showing significant promise in solving the problems typically associated with cross-border payments.
The BIS noted that China contributed a large chunk of the project’s numbers, which analysts say indicates the digital yuan’s strength. PwC China senior economist G. Bin Zhao stated that the pilot “provides a historic window for China to promote yuan internalization as the U.S. weaponizes the dollar.”
The development of the digital yuan has captured global interest, with the People’s Bank of China (PBoC) introducing several policies to improve adoption rates. The pilot has been expanded to more regions in mainland China, while the cities of Guangzhou and Ningbo have deployed the digital yuan in their transportation sector.
These developments have led to impressive numbers for the country’s CBDC. Last week, the PBoC released new data showing that the total transaction volume for the CBDC had clocked $14 billion, and the mobile app reached a milestone of 260 million downloads.
China’s success in the mCBDC experiment was attributed to the advanced development of the digital yuan compared to that of other competing countries. State-owned banks, including the Bank of China and China Construction Bank, took part in the pilot and may have contributed to the impressive figures.
Potential pitfalls for the digital yuan
The digital yuan faces significant headwinds like privacy concerns and worries that the Communist Party could use it to spy on citizens and foreigners. This was the main reason for a Republican-sponsored bill presented to the United States Congress that sought to bar app stores in the country from hosting apps that “support or enable transactions in e-CNY.”
China refuted the allegations saying that it will protect users’ privacy and will only track the data upon suspicion of a crime being committed.
Other challenges for the CBDC lie in the macroeconomic factors of a coronavirus-ravaged financial system and a property debt crisis. The yuan has already lost 12% of its value against the dollar, and “sustained depreciation due to worsening fundamentals could weaken confidence in the currency.”
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