King BTC is dead: Long Live King CBDC
The E-Yuan is the world’s most advanced and biggest Central Bank Digital Currency (CBDC). China WILL make this work — and if it’s over the dead bodies of BTC and Super Apps (WeChat, Alipay, etc), well that isn’t going to stop them.
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If we want to get a sense of the future of electronic payments and how tokenisation is likely to change all our lives and finances in the next one to three years, then there is only one place to look for guidance, China.
China is so far ahead of the rest of the world in the adoption and development of digital payments it’s difficult for those of us based outside the country to really understand how far the domestic economy has been transformed in the last decade or so.
But whilst it has been a massive success, it has not been a steady story of growth — far from it. In many parts of the world, instant banking, or the appearance of close to immediate transactions, has become part of the customer expectation. In China, development followed a different path with technology vendors, particularly the Super Apps, leapfrogging the untrusted old school banks. Technology, particularly based around QR codes, allowed new ecosystems to supplant these traditional financial institution roles. In particular, mention should go to Alibaba and Tencent, for their instantaneous solutions which became ubiquitous from coffee shops to street vendors a decade ago.
However, as China became cashless, two major problems emerged for government. Firstly, the Party and the big banks were getting left out of the equation. Not good. Meanwhile leakage into crypto currency became a flood, potentially threatening to undermine much of the fiat based Chinese economy. China had quietly become the world’s dominant mining location for both BTC and alt coins. Convertibility has always been a deliberate problem for the Yuan and the wealthy savvy were increasingly using crypto as a method to extract wealth from the Middle Kingdom.
So inevitably the regulators had to step in to make changes. But they had a realistic agenda. The only way they could break into the customer friendly ecosystem that had been so massively successful for the super apps, would be by providing a viable channel inside the system. This led to the birth or the Digital Yuan or E-Yuan the world’s biggest and most advanced Central Bank Digital Currency or CBDC.
Scroll forward to today and the E-Yuan is being effectively rolled out across multiple locations in China. Meanwhile China has been reigning in the power of the super apps . At the same time the leakage via crypto currencies is increasingly under fire with the regulators targeting mining and social media advocates in equal measure. Whilst this is going on China is increasingly restricting access for the citizens to crypto generally.
So what comes next?
Well it seems increasingly likely that a fully fledged E-Yuan system will be launched before the end of 2021. Already there are 2 million test users in 11 regions including Shanghai. The wings of the Super Apps have been firmly clipped already, so it is inevitable they will be forced to adopt the E-Yuan — whether they like it or not. The Chinese clamp down on BTC and other non-regulated alt coins will surely continue — it’s likely effectiveness is a debate for another time.
But irrespective of all that, central banks and regulators from around the world will be watching this experiment very closely. The leakage from fiat to crypto has been astonishing and unprecedented. Almost every other major financial jurisdiction has now “discovered” the potential of CBDCs in the recent months and is trying to find solutions. The race is on to see who can follow the Chinese model — or something similar — as soon as possible. However, no other Central Bank is going to admit they are looking at the Chinese for a lead on technology, that would be just too ironic.
16 June 2021
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