China Proposes Cross-Cutting Values for CBDC Cross Border Payment Use
To avoid intolerization, China has proposed some key cross-cutting values in making cross border payment arrangements with digital fiat currency or central bank digital currency (CBDC) possible.
The CBDC or digital fiat currency, as supplied by a central bank, should support the healthy evolution of financial stability over the international monetary system, says Mu Changchun, the director-general of the PBOC’s digital currency institute at a Bank for International Settlements seminar last week.
No central bank should impede other central bank’s ability to carry out its mandate for monetary and financial stability, he adds, saying:
“Cross border payment arrangements with CBDC should comply with the regulations and the laws of jurisdictions concerned such as capital management and foreign exchange mechanisms and information flow and fund flow should be synchronised so as to facilitate the regulatory system to monitor transactions for compliance.”
Payment arrangements with CBDC should improve the transparency in cross border e-commerce and help to address the regulatory pain points in AML safety, customs and tax declaration and capital management etc.
“Of course, interoperability should be enabled between CBDC systems of different jurisdictions,” he said, adding that an exchange of CBDCs should be processed by virtual border between the different digital wallets and proposed a scalable and overseeing foreign exchange platform supported by DLT or other technologies.
Mu had earlier stated China’s motivation for going the CBDC way in his speech as based on four reasons. First is to help in safeguarding monetary sovereignty and the independence of monetary policy implementation particularly with the threats posed by crypto assets like Bitcoin and Ethereum in 2014 when their popularity started to soar.
It was to provide a backup or redundancy for China’s payment system should anything go wrong with the country’s two big players in the retail mobile payment market – Alipay and Tenpay – which he says have become “significant important financial infrastructure” having taken 90% of the mobile payment market especially in the retail payment service sector.
With more people now going out without any physical wallet, credit or debit cards, but their mobile phones, he stresses the importance of mobile payment in China and how its financial stability would be impacted negatively should anything bad happen to the major players technically or financially.
It was also to improve the efficiency of the central bank payment system with a wider access and a stronger capacity in line with most central banks of the world which have over the years been improving their payment systems to provide a wider access to participants and to provide a stronger capacity to users of the central bank payment systems.
So a lot of central banks were actually working on that and some of them created Fast Payment Systems including the TIPS etc. The retail CBDC is one of the efforts to improve the efficiency of the central bank payment system.
Lastly, he said China decided to create the CBDC to improve financial inclusion so as to reach parts of China where people in a lot of remote areas still cannot enjoy the mobile payment services and the basic financial services.