In 2009, after the Global Financial Crisis, PBOC Governor Zhou Xiaochuan said, "The world needs an international reserve currency that is disconnected from individual nations and able to remain stable in the long run, removing the inherent deficiencies caused by using credit-based national currencies.”
Moving right along
The PBOC’s first step was to create the e-Yuan, China’s (and the world’s first major) central bank digital currency, CBDC, and release it into the wild in the Spring of 2021. Public officials who elected to be paid in the now-traceable currency we celebrated and the wild rumpus began.
Fast forward to Fall, 2023, and industrial enterprises, fintechs, commercial banks and start-ups are relocating to Shenzen’s e-Yuan industrial park, attracted by grants and loans up to $7 million and three years’ free rent. Beijing kicked in $14 million for digital RMB computing, algorithms and digital economy data, to encourage new CBDC use cases across industries and business sectors and boost the development of the digital economy.
Chinese visitors to Singapore now use digital yuan CBDC. Increasing integration between the digital yuan and Hong Kong enables visitors in both directions to use the CBDC.
Last week, PetroChina bought one million barrels of crude oil, and settled in e-CNY, at the Shanghai Petroleum and Natural Gas Exchange (SHPGX) ..and that’s where the story gets interesting. This week, says Lawrence Awuku-Boateng, “The central bank of Ghana is cooperating with the Russian central bank and we plan to conduct trade settlements in national currencies through a bank in China. This greatly simplifies the process”.
Enter mBridge
Cross-border payments, which the US dollar dominates, will reach $250 trillion by 2027, up $100 trillion in a decade. There’s just no stopping it.
The trouble is that international payments are slow and costly, and Washington’s ‘long-arm’ jurisdiction over all dollar transactions has politicized trade.
So Basle’s Bank for International Settlements came up with mBridge.
mBridge, the BIS’ digital interbank payment system, lets Chinese companies pay UAE vendors in digital e-yuan. The mBridge blockchain instantly converts the yuan payment into dirham and and credits it to the vendor’s UAE bank account. mBridge 6-8 ms. execution time and 2.2¢ transaction cost bring Beijing’s goal of frictionless trade a giant step closer.
And best of all? No US regulators, banks, or dollars are involved.
Cause for concern
The PBOC (the world’s richest central bank), the HK Monetary Authority, the Royal Bank of Thailand and the UAE Central Bank have been using mBridge to trade with China, Hong Kong, Thailand and the UAE for over a year, and BRI Conference attendees were told that they could join the club next January. The effects of this are impossible to foretell but they will not help, and may very well damage the US dollar’s use in trade and, therefore, its usefulness as a reserve asset.
Official updates
August, 2023. Indonesia, Malaysia, and Thailand central banks sign an agreement to promote the use of local currencies in bilateral transactions.
November 3. The Bank of Thailand: “Use of local currencies should minimize the risk of US dollar fluctuations, recently 8-9%. During periods of significant dollar volatility, businesses can opt to use these local currencies for payments instead. This reduces the risk associated with exchange rates, making trade negotiations easier”.
November 4. Central banks observing final development of mBridge, prior to 2024 public release. The New York Fed is discreetly representing the USA.