The Big Ideas

by Malcolm Riddell

'How Will the Digital Renminbi Change China?'

Project Syndicate

CHINADebate

Shang-Jin Wei
|

Professor, Columbia University & former Chief Economist, Asian Development Bank

&

by
|
|
&
May 3, 2021
'How Will the Digital Renminbi Change China?'
'How Will the Digital Renminbi Change China?'
No items found.

BIG IDEA | ‘China's new digital renminbi by itself will not help the currency to challenge the US dollar’s global dominance.’
‘Its true significance instead lies in its potential to shift the competitive balance of power between the country’s technology giants and traditional banks.’

‘While many central banks are still investigating the possibility of issuing a digital currency, China has rolled out a digital currency via a series of pilot programs since last year.’

  • ‘The eRMB (my term as opposed to the more awkward official DC/EP) by itself will not help the renminbi to challenge the US dollar’s global dominance.’
  • ‘Its true significance instead lies in its potential to alter the balance between China’s technology giants and traditional majority state-owned banks, thus indirectly enhancing the banks’ international competitiveness.’

‘The pilot programs employ a two-tier structure with “controlled anonymity.” ’

  • ‘The People’s Bank of China (PBOC, the central bank) issues eRMB to an authorized group of large state-owned banks and other selected financial institutions, which then make the money available to households and firms – the digital currency’s ultimate users.’

‘In the pilot schemes, eRMB were distributed to randomly chosen individuals via free digital gifts. At the full-scale launch, the government will have several tools at its disposal to encourage wider use.’

  • ‘For example, it could pay the salaries of government and state-owned firms’ employees – some 15% of the workforce – and public-sector pensions in eRMB.’
  • ‘Government procurement programs, transfers to low-income households, and subsidies to firms also can be carried out in the new currency.’
  • ‘In addition, the government could require citizens to pay a progressively higher proportion of income taxes and other public-sector fees in eRMB.’

‘A significant consequence of the eRMB that Chinese officials have not publicly discussed is its potential to alter the balance of power between China’s banks and Big Tech firms.’

  • ‘Traditional banks, which have been losing market share to the digital giants in both money management and lending, are probably cheering.’

‘One of Big Tech’s advantages over traditional banks is the accumulation of “soft information,” such as customer reviews of the firm’s products and services, and product return rates.’

  • 'Under controlled anonymity for the eRMB, the PBOC will gain a similar ability to monitor what is otherwise invisible to banks.’
  • ‘And this could reduce or even eliminate Big Tech’s information advantage.’

‘The eventual international use of the eRMB will depend on a number of factors.’

‘As China’s global trade and financial importance grows, more transactions will be settled in renminbi.’

  • ‘Chinese state-owned firms could insist on settling a portion of their international transactions in renminbi, while the PBOC could sign more swap agreements involving the currency.’

‘But Chinese capital controls, as well as the relatively small amount of liquid renminbi-denominated assets that can be bought and sold by international investors, will limit the currency’s international uptake.’

  • ‘Reforms in these areas, on the other hand, can promote its adoption.’

‘US policy also will play a role.’

  • ‘The US authorities could, for example, discourage American financial institutions from using the renminbi.’
  • ‘Ironically, frequent US financial sanctions that exploit the dollar’s privileged global position could promote the emergence of alternatives to the greenback, including the renminbi.’

‘The eRMB on its own will not advance the renminbi’s internationalization.’

  • ‘Its main impact is likely to be a rebalancing of power between the banks and the Big Techs at home.’

CHINADebate

Malcolm Riddell
|

CHINADebate

|
&
|

'Are you tired of losing yet, America?'

As I write this, Taliban forces have entered Kabul and are reportedly occupying the Presidential Palace.
8/15/2021

Bloomberg

CHINADebate

|

|
&
|

'China Signals More Regulation for Businesses in Coming Years'

‘The State Council’s statement provides a guiding context to interpret current regulatory thrusts. The blueprint as an attempt by Chinese authorities to help investors understand the motives behind the regulatory push.’
8/15/2021

The Wall Street Journal

CHINADebate

|

George Soros
|
&
|

'Xi’s Dictatorship Threatens the Chinese State'

‘Mr. Xi is determined to bring the creators of wealth under the control of the one-party state.’
8/15/2021

CHINADebate

Malcolm Riddell
|

CHINADebate

|
&
|

Don't Say Xi Jinping Didn't Warn You

‘Global investors are shocked to have discovered that China is run by Communists.’
8/5/2021

Bloomberg

CHINADebate

|

Matthew Brooker | Bloomberg
|
&
|

‘Global investors shocked to have discovered that China is run by Communists.’

‘Global investors are shocked to have discovered that China is run by Communists.’
8/5/2021

Bloomberg

CHINADebate

|

|
&
|

'Shocked Investors Scour Xi’s Old Speeches to Find Next Target'

‘While China’s policy moves can feel ad hoc particularly to foreign investors, the changes are quite targeted on certain sectors.’
8/5/2021

The Wall Street Journal

CHINADebate

|

Greg Ip | The Wall Street Journal
|
&
|

'China Wants Manufacturing—Not the Internet—to Lead the Economy'

‘Social media, e-commerce and other consumer internet companies are nice to have. But in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing.’
8/5/2021

Bloomberg

CHINADebate

|

|
&
|

'China Plans to Exempt H.K. IPOs From Cybersecurity Reviews'

‘China plans to exempt companies going public in Hong Kong from first seeking the approval of the country’s cybersecurity regulator, removing one hurdle for businesses that list in the Asian financial hub instead of the U.S.’
7/18/2021

The Wall Street Journal

CHINADebate

|

The Editorial Board | The Wall Street Journal
|
&
|

'Biden’s Warning on Hong Kong'

‘The pretense of Chinese and Hong Kong authorities is that their crackdown on the rule of law and dissent will have no effect on Hong Kong’s viability as an international center for trade and finance.’
7/18/2021

CHINADebate

CHINADebate

Malcolm Riddell
|

CHINADebate

|
&
|

Why the U.S. Lacks Leverage over China

During the celebration of the Chinese Communist Party’s Centennial celebration, Mr. Xi stood in the same place on the balcony facing Tiananmen Square where Mao Zedong stood when he announced the founding of the PRC; Mr. Xi wore a gray Mao suit, among a sea of blue western suits; and he centered himself right above the portrait of Mao, who is similarly attired.
7/18/2021

Foreign Affairs

CHINADebate

|

Kurt Tong | Asia Group
|
&
|

Hong Kong and the Limits of Decoupling

‘The United States’ inability to make China regret—much less reverse—its transgressions in Hong Kong suggests that financial separation, sanctions, and economic barriers are less reliable tools than many in Washington believe.’
7/18/2021

Nikkei Asia

CHINADebate

|

|
&
|

'I will aim for Mao's Status.'

‘There on the gate was Xi Jinping, Chinese president and party general secretary, in a gray Mao suit. Just below his feet was the portrait of Mao Zedong, also dressed in a gray Mao suit.’
7/18/2021

Financial Times

CHINADebate

|

|
&
|

'US warns companies of risk of doing business in Hong Kong'

“In the face of Beijing’s decisions over the past year that have stifled the democratic aspirations of people in Hong Kong, we are taking action,” said Antony Blinken, US secretary of state. “Today we send a clear message that the US resolutely stands with Hong Kongers.”
7/18/2021

CHINADebate

CHINADebate

Malcolm Riddell
|

CHINADebate

|
&
|

The Chinese Point of View

Here are a few of my thoughts on the importance of Wang Jisi’s ‘The Plot Against China.’ Yuen Yuen Ang’s ‘The Evolution of Chinese Corruption’ speaks for itself - but note especially how Mr. Xi's anti-corruption campaign could hurt China's economy. I have now lived long enough that when a friend complains about his or her spouse, I say to myself, ‘There are no doubt two sides to this story.’
7/4/2021

Foreign Affairs

CHINADebate

|

Wang Jisi | President of the Institute of International and Strategic Studies at Peking University
|
&
|

'How Beijing Sees U.S.-China Relations'

‘In Chinese eyes, the most significant threat to China’s sovereignty and national security has long been U.S. interference in its internal affairs aimed at changing the country’s political system and undermining the CCP.’
7/4/2021

Foreign Affairs

CHINADebate

|

Yuen Yuen Ang | University of Michigan
|
&
|

'How Corruption Powers China's Economy'

‘China has managed to sustain four decades of economic growth despite levels of corruption that even Xi has described as “grave” and “shocking.” Why does it seem to have bucked the trend?’
7/4/2021

Harvard Magazine

CHINADebate

|

Ed Steinfeld | Brown University
Tony Saich
|
Harvard Kennedy School of Government
&
|

'From Rebel to Ruler': Tony Saich on Chinese Communism at 100

‘At so many points during its century-long existence, the CCP appeared to be in its death throes, whether as a result of external attack or self-inflicted internal strife.’
7/1/2021