The Governor of the People’s Bank of China, Pan Gongsheng, announced the establishment in Shanghai of an international operations center for the digital RMB, its central bank digital currency (CBDC). He also discussed the expansion of international trade finance, with industry pundits suggesting this aims to improve financing for Chinese goods that are finished in other countries to sidestep sanctions.
A speech published by the central bank did not cover these operational details, but instead urged changes in global currencies and cross border payments.
The governor strongly criticized the US, although semi-indirectly. He said that international dominant currencies are like public goods. When the country that controls the currency starts using the currency for its own self interest it undermines that public good feature. He warned that accumulated domestic fiscal and structural issues in that country could spill over into an international financial crisis. Additionally, the Governor complained about the weaponization of currency for geopolitical purposes.
Hence, he called for greater diversification in currency usage worldwide. That’s certainly not the first time a Chinese central bank governor has pushed for that. It’s also not new for a governor to suggest a greater take up of the IMF’s special drawing rights (SDR) in international trade. Beyond currency, he also addressed payment systems.
The topic of blockchain and DLT in cross border payments was discussed in the context of both central bank digital currencies and stablecoins. He only alluded to mBridge, the international cross border CBDC originally developed by five Asian and Middle Eastern central banks with help from the BIS. The BIS withdrew from the project saying it had graduated, around the time of talk of sanctioned countries such as Russia or Iran participating.
The central banker said these technologies have greatly shortened the payment chain, but also pointed to the supervision risks of stablecoins. For now, with Hong Kong passing stablecoin legislation, it seems that island is being used as a learning and observation ground for mainland China.
“Technologies such as smart contracts and decentralized finance will also continue to promote the evolution and development of the cross border payment system,” he said.
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