Matthew Graham, a former Chinese investment banker and CEO of Beijing-based Sino Global Capital. Examined what is known about the emerging digital currency so far. And argued that the Chinese government sees new technology as a “leapfrog opportunity” to chip away from the supremacy of the dollar.
Speaking at the Unitize conference on 6 July to Boxmining founder Michael Gu, Graham said that while China considers it extremely difficult to internationalize the renminbi:
“Swift, CHIPS, Fedwire […] they’re antiquated, they’re expensive, they’re slow. It’s 2020 and we have transactions that take three days to clear and that are far more expensive than they should be. All of these technologies that underpin much of the USD-centric global economy are really showing their age. So that’s a big opportunity [for China].”
Beijing uses the DCEP acronym to refer to its upcoming electronic payment system for digital currency. And, as Matthew Gu noted, has “borrowed a lot of its technological details from blockchain,” including concepts like UTXO.
Yet DCEP is a long way away from such public blockchains like Bitcoin. It is claimed to be issued by China’s People’s Bank. And will remain under full central bank control and authority, as with other existing national fiat currencies.
Graham explained that “if you’re approaching this [DCEP] from a crypto or blockchain framework, I think you’re going to really have a hard time understanding what it is and what and why it’s so important.”
New technologies integrated into the digital yuan, including those learned from blockchain, are being used for a different purpose. Gu cited remarks from the president of the China International Economic Exchange Centre, who had previously said:
“DCEP can achieve real-time collection of data related to money creation, bookkeeping, etc. Providing useful reference for the provision of money and the implementation of monetary policies.”
Graham added that, for monetary policy, DCEP “could be very useful for implementing negative interest rates.” Moreover, “it opens up a lot of capabilities in terms of AI and machine learning for fraud detection […] and there’s potential programmability aspects as well.”
Contrast this with things like Fedwire, Coins, SWIFT — a “plumbing” that underpins much of the dollar economy around the world. These are “thirty, forty, fifty-year-old inventions, with all the friction and cost,” as Graham pointed out.
“There is a leapfrog opportunity” here, he said. “DCEP’s not about Bitcoin. It’s about potentially internationalizing renminbi, at least to some extent.”