The Banking Executive Magazine - January 2022 Issue

China Launches its Digital Yuan Cryptocurrency that can convert foreign currencies, including U.S. dollars. The digital yuan will be carried in a digital yuan wallet card. But the road to interna- tionalization is not easy. China’s tight control on the exchange rate has al- ready hindered the physical yuan’s wider use, and that policy will con- tinue to put some off of adopting the digital version. Unlike truly anony- mous cryptocurrencies, China’s cen- tral bank says the digital yuan will come with controllable anonymity, as users can get the digital wallet only by registering with their mobile number. Since people in China need to register their numbers with real identities, that promise may not carry much weight. CHINA LEADERSHIP IN DIGITAL CURRENCY According to Forbes, Wall Street Journal, Thomson Reuters, and CNBC, the digital yuan has become a hot topic as data nationalism and fights over technology standards reign around the world. Chinese companies are fierce about collect- ing the vast realms of data generated by the largest cashless population in the world. A digital yuan helps make China even more competitive, and gives it the opportunity, to make granular and aggregated decisions economically. The digital yuan also is part of China’s long-desired goal to internationalize the RMB across dif- ferent countries. China’s Cross-Border Interbank Pay- ment System, an attempt to mount an alternative to US-dominated SWIFT, will only be strengthened by the lower transaction fees and settlement times promised by a digital-first DCEP. As China integrates more closely with developing trade partners, it will attempt to impose new technological standards, including ones for digital money, upon the world in order to overcome the economic rules of the U.S. driven global order. The digital yuan may become more attractive than just a digital version of the RMB and help more quickly accelerate the trend of elevating China’s currency into a premier reserve currency. With the drive towards increasing interna- tional acceptance of Chinese cur- rency, as well as the ability to set standards for how rich financial data is collected and used, the digital yuan is a major China’s attempt to lead the global financial order. LESSONS FOR ARAB BANKS AND AUTHORITIES Many lessons for Arab banks can be drawn from China pioneer launch of digital yuan. The most important ones are: • Innovation in digital currency and digital payment systems develop- ment. • Control of digital currency • Gaining sovereignty of digital cur- rency • Leadership of digital currency technology • Use of wealth of data generated by digital currency trade • Defining goals, strategies, and poli- cies for a national digital currency • Global positioning of the digital currency • Developing mobile apps for trad- ing digital currency • Worldwide trade and acceptance of digital currency • Marketing use of digital currency in important world event. China choose the Winter Beijing Olympics. Saudi Arabia and UAE have many events to promote their national digital currencies • Global financial leadership • Modernization of financial system to surpass bitcoin and underlying technologies • Addressing global need and the need of the wider world popula- tion • Enhancing international money transfer and competing with SWIFT and U.S. dollar • Developing a working model for managing digital cash • Developing advanced technology standards for digital currencies the BANKING EXECUTIVE 14 ISSUE 157 JANUARY 2022