RCEP Enters Force as China Seeks to Launch CBDC Next Month
A month to the public rollout of its central bank digital currency (CBDC), the world’s largest free trade agreement involving 15 countries including China, the Regional Comprehensive Economic Partnership (RCEP) Agreement, has taken effect.
The RCEP entered into force on Saturday 1 January 2022 after members signed the long-awaited trade deal in November 2020 following eight years of negotiations.
The 15-member Asia-Pacific countries – China, Japan, South Korea, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, Australia and New Zealand – cover about 30% of the world’s gross domestic product and population.
Japan is expected to be the biggest beneficiary of the deal in terms of exports estimated at $20.2 billion followed by China and South Korea at $11.2 billion and $6.7 billion respectively.
Meanwhile, China is the group’s largest member and the country likely to be the first major economy to issue a central bank-backed digital currency. There have been a look at it from another economic perspective in the past with proponents claiming that the RCEP’s kickstart will present China with a good initiative to promote its digital currency’s wider use agenda.
The argument builds on the internationalization of the yuan as well as the cross border use of the digital yuan being discussed extensively in recent times. However, it is not clear what role the Chinese CBDC will play in the new arrangement upon rollout.
The RCEP will enable preferential treatment for exports and investments among businesses and supply chain partners in some of the countries thus improving the region’s economic connection. While the rolling out of a unified RCEP market covering 2.2 billion people and a combined economic size of $26.2 trillion is to complement efforts to offset the negative impact of the global pandemic, it is also being suggested to make China become a locomotive in global economic recovery.
A United Nations Conference on Trade and Development (UNCTAD) study published in mid-December notes that the economic size of the bloc will make the region “a center of gravity for global trade.”
Trade between the bloc currently worth about $2.3 trillion in 2019 is set to see a boost in exports by nearly 2%, or approximately $42 billion, according to UNCTAD’s analysis.
The deal, which will see Asia’s biggest economies – China, Japan and South Korea – be connected by a free trade agreement for the first time, will also have tariff concessions and possible elimination of levies on more than 90% of goods moved around the bloc. Some of the tariffs will be abolished immediately while others will be reduced over a 20-year period, UNCTAD adds.
Ahead of the planned February’s Winter Olympic in Beijing where the digital yuan is expected to be launched publicly, the CBDC has been trialled on many fronts. From major Chinese cities to cross border initiatives like with the m-CBDC Bridge and its recent connection with Hong Kong’s Fast Payment, the digital yuan’s pilot schemes have been deemed successful.
The RCEP take-off is also coming at a time when China’s rumoured plan to ditch the U.S. dollar as its main currency for trade settlements received a boost. China and Russia recently say they have been working on an independent trade network that would enable them to rely less on the U.S.-led international financial system, SWIFT, for trades.