Headline: What is Standard Chartered (Bank) doing with China on digital currency?
Body: Not long ago, the country of China had a restriction against all digital currency (I suspect this was most important to the leadership because this currency got its legitimacy from somewhere other than the State.) But, it would seem that the Chinese leadership is considering offering the digital yuan as a central Bank Digital Currency (CBDC). A British financial institution, Standard Chartered, has been hired to help them. I had to wonder what Standard Chartered would be expected to do to earn their fees. So, let’s look at it.
So, what exactly are they doing for China?
China desperately wants to create its own digital currency Toward this end, China hired PWC and others to work on a report called “Central Bank Digital Currency. Recently, Standard Chartered announced that its depositors could purchase these digital assets thru a partner. It would also appear that Standard Chartered is involved in pilot testing the use of the CBDC in trade. It would appear that the Peoples Bank of China executed some early pilot testing, and it seems that Standard Chartered is being included in the later pilot testing to corroborate the international aspects of digital transactions. Cursory research only was needed to corroborate that Standard Chartered had facilitated financial change within China many times before. In this current project, the Bank will be a major part of helping customers with digital yuan exchange and redemption.
So, what is the progress so far?
Piece by piece, it would seem that the Chinese government is adding up the puzzle of digital currency. First, they engaged outside consultants to write a paper about how the system could be made to work in China. February saw the distribution of millions of dollars in e-yuan, and March saw $22 Billion in payments using e-yuan. In May, the Chinese e-commerce app Meituan integrated the asset, and in July, certain air travel services began to accept the digital yuan. PetroChina carried out the first cross-border crude oil trade involving the asset in October.
The Verdict
Up to now, the Chinese government has been almost religiously against all digital currency. ( Which is interesting given how significantly their “social score” can affect the lives of the people. ) So, the question we are left with is “Why?” I think this comes back to control. If the government offered nothing, anybody with a VPN could be buying up digital currencies and stashing these assets in Coinbase or Binance or any other exchange. By offering the e-yuan, the Chinese government can make it seem to a good number of their populace, that they DO have a digital option that is “harmonious” with State objectives and takes a digital format. You might think this view cynical, but, the history of centuries of centralized financial engineering informs my bias. But, it is also my supposition that the Chinese people will soon learn that this is not the cryptocurrency they have heard about, and disharmony will spread significantly. Put another way, I think it will work for the government in the short term, and blow up on them in the longer term. The question then becomes, “What’s the length of the short-term?” This is hard to tell, but, I think it will be sooner than most economists are estimating.
REFERENCES
https://cointelegraph.com/news/standard-chartered-joins-china-cbdc-pilot-testing
https://www.sc.com/en/press-release/standard-chartered-china-participates-in-e-cny-business-pilot/
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.