As China advances its digital currency plans, the US lags behind

China’s digital yuan project, a blockchain-based cryptocurrency for consumer and commercial finance, can no longer be considered a pilot. This is the assessment by economic and cryptocurrency experts.

Those experts are overseeing efforts to develop and pilot central bank digital currencies (CBDCs) in China and other countries, with the aim of establishing a blockchain-based virtual cash that is cheaper to use and faster to exchange. is, both at home and across international borders.

To date, the People’s Bank of China has distributed the digital yuan, called e-CNY, to 15 of China’s 23 provinces. Used in over 360 million transactions A total of 100 billion yuan, or $13.9 billion, in the north. the country is real million dollars given The value of the digital yuan through a lottery, and its central bank has also participated cross border exchange with many nations.

If e-CNY continues to be adopted and becomes the de facto standard for international commercial and retail payments, Privacy of digital currency usersAlso the US dollar’s days as the world’s reserve currency may be at risk.

Whichever nation finds an internationally accepted financial transaction network for digital cash will be the one to set the standards around it, “and then everyone else will have to follow them,” said the former Ameritrade CTO and cybersecurity research firm said Lou Steinberg, managing partner of CTM Insights, “They will be designed to the standards their developers want to meet. Can be built under supervision.

“China wants digital cash because it is another tool for tracking citizen behavior – how much do you spend at the liquor store, do you go to the movies, and which ones?” Steinberg continued. “If all transactions are recorded and linked to your account, they know a lot. Similar concerns about government surveillance exist in the US, although the motives for surveillance may differ from one authoritarian state to another.” Huh.

America has been Considering the creation of a digital representation of the dollar for about three years. In March, President Joseph R. Biden Jr. issued executive order That, among other things, called for greater urgency on research and development of US CBDCs, “to be continued if deemed to be in the national interest.”

In November, the New York Federal Reserve Bank Began to develop a bulk CDBC prototype, nominated project cedar, the CBDC initiative has created a blockchain-based framework that is expected to become a pilot in a multi-national payment or settlement system. The project, now entering Phase 2, is a joint experiment with the Monetary Authority of Singapore to explore questions about the interoperability of distributed ledgers.

“I don’t think we’re treating it like a moonshot,” Steinberg said. “The Fed isn’t saying this is the future, like it or not, and we need to have a say in how that unfolds, and so that’s the most important thing we do.”

The blockchain technology that underpins digital cash projects is the same one used for the Bitcoin and Ethereum cryptocurrencies. The difference is that CBDCs, like traditional cash, are backed by the authority of a central bank, which is why they are called central bank digital currencies.

Unlike online retail payments, such as those made via mobile devices, wholesale cross-border payments are transactions between central banks, private sector banks and corporations. Cross-border spot trades (or instant payments) are among the most common wholesale payments, as they are often needed to support wider transactions, such as for international trade or overseas property investments.

While the US has made some progress towards creating a CBDC, it is still far behind other countries.

For example, project dunbar The Reserve Bank of Australia brings together Bank for International Settlements (BIS) Innovation Hub, Bank Negara Malaysia, the Monetary Authority of Singapore and the South African Reserve Bank to test the use of CBDCs for international settlements.

“We are looking at 13 existing wholesale projects with varying arrangements between countries,” said Christian Catalini, founder of the Cryptoeconomics Lab at the Massachusetts Institute of Technology (MIT). “The United States is clearly behind. Part of the reason is that there is no consensus on whether a CBDC is needed or useful. Both when it comes to the scale of its use and the progress made so far, There is only one clear nation leading the effort, and that is China.

e-CNY Explained

The e-CNY is a digitized version of China’s cash and coins and, like other CBDCs, it was deployed on a blockchain distributed ledger – an online, distributed database that tracks transactions. This database uses encryption to ensure the online cash and coins exchanged through it are tamper-proof, meaning that only users with access to specific private-public keys can participate in transactions. In reality, for retail that could look like a QR code on a smartphone being used to make a purchase in a store. Or it could be a corporation broadcasting a public key code that allows a specific monetary exchange.

In 2020, the Atlantic CouncilThe Washington DC-based think tank began tracking 35 CBDC projects. Today, it is looking at 114 CBDC projects globally, measuring their progress based on four phases: research, development, pilot and launch. China’s e-CNY currency has been in the pilot phase since 2020, when it announced the digital currency at the Beijing Olympics. (China has been exploring creating a digital currency since 2014.)

Atlantic Council Map of CBCD Projects Atlantic Council

The greener the area, the more advanced the CBDC projects.

“In the span of two years, the world’s leading central banks have gone from skeptical to serious about the government form of digital currency,” the Atlantic Council said last month,

Ananya Kumar, Assistant Director of Digital Currencies Geoeconomics Center of the Atlantic Councilsaid that the Asian region in general and countries such as China, Thailand and the UAE have the most advanced CBDC projects.

For the US to truly develop and pilot its own retail CBDC – one that can be used by consumers – it will require Congressional action authorizing the Federal Reserve to proceed, “and we look forward to that.” There is nowhere near,” Kumar said.

While China’s e-CNY project may be out of pilot, the billion-plus yuan transferred using its blockchain ledger is not as large as it may seem. The transfers that happen over the three-year life of the e-CNY rollout are only a third of what Alibaba and Tencent Pay – China’s two biggest mobile payment processors – transferred in a single day. “So, comparatively, it is a very small number of transactions,” Kumar said.

While not yet a reality, in theory there is a threat to the US dollar as other countries are developing their own CBDC networks to transact more easily without it. “We see this as the number of wholesale CBDC projects launched has doubled during this year,” Kumar said.

Kumar said, “Since the invasion of Ukraine and the unveiling of the sanctions package against Russia, countries are trying to figure out what they should do if this happens to them and how they can build a system against it.” Huh.”

Financial rails, or clearance and settlement systems such as SWIFT today, honor sanctions imposed by NATO countries. But as CBDCs become more widely adopted, countries such as Russia, North Korea or China may bypass those restrictions. using digital currencies Not regulated by the US or its allies.

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