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China should push for an international payments system based on the digital version of IMF Special Drawing Rights to diversify the global currency system and improve the speed and security of transactions, policy advisors and digital currency experts told MNI, noting that it would take time for the e-yuan to play a major role in overseas transactions.
While China is already exploring potential cross-border payment systems using its new digital yuan, it may take five years before e-CNY is properly established even in the country's own domestic market, the advisors noted. Using the e-SDR as the basis for a new global payment architecture would promote the yuan's global status and improve the efficiency of payment systems, the advisors said.
According to Zou Chuanwei, chief economist at Wanxiang Blockchain, lots of hard work is needed for the e-CNY to go abroad, such as dealing with the long drawn-out process for regulatory approval, overcoming weak foreign demand for the Chinese currency and ensuring the compatibility of central banks' digital currency platforms.
Other advisors have told MNI that Chinese policy makers are increasingly looking for alternatives to payment networks such as SWIFT, whose full name is Society for Worldwide Interbank Financial Telecommunication, which can easily be controlled by the U.S.
A system based around e-SDR with distributed ledger technology would establish a highly efficient, low cost and safe cross-border payment network, said Liu Dongmin, a senior fellow at the Institute of World Economics and Politics under the Chinese Academy of Social Sciences. It could shorten the time needed for cross-border payments to a day or even a few minutes from the current three to five days, he said.
It would also ensure interoperability of payment platforms across countries and make the SDR indispensable in the global cross-border payment network, increasing its private use, which is key for it to become a digital super-sovereign currency, he said.
WEIGHTING TO GROW
Increased use of e-SDR would boost demand for the yuan as an international reserve currency, as the IMF unit is based on a basket of currencies in which China's weighting is set to grow as the world's second-largest economy, said Zou.
In the meantime, the People's Bank of China is in no rush to internationalise the e-CNY, although some pilot projects could be expanded globally, said Liu Bin, director of Financial Research Department at Pudong Academy of Reform and Development.
According to reports, six big state banks are promoting e-CNY by handing out "red packets" and other purchase options ahead of a May 5 shopping festival in Shanghai. The city is expected to take the lead in cross border payment systems as an international financial hub with Hong Kong playing a similar role as an offshore yuan centre and as a firewall to check risks, said Hao Yi, a digital currency specialist.
Beijing recently said it would join Hong Kong, Thailand and the United Arab Emirates in the Multiple Central Bank Digital Currency Bridge, a cross-border payment project initiated by HK authorities and the Bank of Thailand in 2019.
The project will deal with challenges such as foreign exchange and platform interoperation, but transaction volumes will still be limited as the country has not fully liberalised its capital account, Liu Bin said.