Chinese Digital currency: Challenge vs Opportunity

Chinese Digital currency: Challenge vs Opportunity

Hassnain Javed

MAY 18, 2020


The outbreak of Covid19 has certainly turned the global dynamics and has given birth to new inventions, innovations, and most importantly restructuring from the institutional level to everyday lifestyles. The origin station of global shift China which is the second-largest world economy on a nominal basis in terms of Gross Domestic Product (GDP) and number one ranked in terms of Purchasing Power Parity (PPP) has launched its very own digital currency backed by the Chinese Central Bank. It is known as the electronic Renminbi (e-RMB) that can change the world finance forever. Thus, it is required to know the basics of the Chinese currency, reasons behind launching the e-RMB, technical aspects of e-RMB, China’s monetary system, and e-RMB, analyze how this digital currency will influence the financial dynamics across the globe and how it has threatened the US dollar.

Renminbi means the “People’s Money”, official currency of China that acts as a medium of exchange but the Yuan is the unit of account of the country’s economic and financial system. From the past 40 years, China has put much work and efforts on achieving Den Xiaoping vision for globalization and has successfully achieved the trade globalization the day they joined hands with World Trade Organization (WTO), economic globalization by launching the Belt and Road Initiative (BRI) raised the world debt by providing loans and formed their equity, military, and geostrategic globalization by strengthening their People’s Liberalization Navy at multiple places. But Chinese markets are so far lacking behind the financial globalization as the communist ideology works opposite the authoritarian regime. It requires financial openness like in Pakistan in terms of stock markets, debt market, etc. for which China has imposed certain restrictions and without that, it is not possible to replace the dollar as the world’s reserve currency.

Until and unless China does not achieve financial globalization they cannot fulfill their 2050 vision. Thus, it is of significance to review the Chinese digital currency in this aspect. Historically, the US exchange rate appreciates whereas Chinese currency depreciates against it. Now, why China depreciates the Yuan against the dollar to accelerate their respective export base. As the Chinese currency depreciates it becomes easier for other countries to buy at lower rates. Similarly, when Pakistan currency depreciates it acts as a catalyst for exporters, IT companies, and especially overseas Pakistanis.

We have to analyze how this digital currency will influence the financial dynamics across the globe and how it has threatened the US dollar

There are six key reasons why China has launched e-RMB. The foremost reason and long-run strategy by the Chinese economy are to replace the dollar to remove the danger bell of exclusion and sanctions. A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level. In the global financial system, the former governor of China’s central bank said last year that the digital currency would eventually be integrated into China’s Belt on Road Initiative. China has been pushing to make the Yuan International but the US dollar still makes up about 60% of foreign exchange reserves worldwide in contrast the Chinese Yuan only makes up about 2%.

Secondly, China aims to achieve financial globalization as it may also facilitate integration into globally traded currency markets with a reduced risk of politically inspired disruption and security for traders. Thirdly, to achieve more control as cash transactions were offline and transaction data from existing payment platforms were scattered, the Central Bank of China was unable to monitor cash flow in real-time. The digital Yuan is issued and backed by the Chinese central bank it’s not decentralized and will not provide the same anonymity as other cryptocurrencies do. Therefore, it is not an independent currency itself it’s just the digital version of the Chinese Renminbi there’s always a central authority in this digital Renminbi system that’s the Chinese communist regime. Therefore, it is of view that the new digital currency aims to replace Bitcoin and other cryptocurrencies with a system controlled by government authorities. Due to its centralized structure, it would give the authorities more control over the everyday lives of Chinese people. The government can directly control each person’s wallet and decide how you can spend your own money, for example, let’s say the government paid someone a salary of 3,000RMB. If the needed Chinese government can restrict money making it so one can only spend 1000RMB on essentials. The system could also be used to suppress residents to restrict their access to necessities or in extreme cases seize personal property.

Fourthly, there is a rise of private money and there is a growing sense that Central banks globally should issue a digital version of cash to prevent the privatization of money by commercial entities and IT firms. For instance, cryptocurrency Bitcoin was introduced by private entities and Libra cryptocurrency by Mark Zuckerberg has already threatened the Central banks across the globe. Fifthly, there is an existing Chinese blockchain. In the past week, China has made its Blockchain-based Service Network (BSN) available for global commercial use. The BSN is led by the Chinese government-backed think tank State Information Center. It is a global infrastructure that claims to help projects create and run new blockchain applications for a lower cost. It also aims to accelerate the development of smart cities and the digital economy.

Finally, there is an impact of still raging novel coronavirus pandemic, and the higher health and hygiene awareness among the masses have also added the impetus to the trail of the digital currency. While there is a dramatic drop in the cash in circulation in Wuhan, China. After the initial ground zero of the viral outbreak, most retailers refuse to accept coins or paper money as a precaution against the highly contagious pathogen. This new technology allows the digital currency to be exchanged without an internet connection, and that it can be used to make contactless payments.

Besides this, there are certain technical aspects of e-RMB. The People’s Bank of China (PBoC) Digital Currency Research Institute does not want a blockchain-based approach as it is a decentralized and distributed digital ledger. PBoC’s role is centralized bookkeeping and administration. Moreover, the sovereign digital currency will be pegged to the national currency. The digital Yuan e-RMB will have the same legal tender status as cash. China has been working on the Digital Currency Electronic Payment (DCEP) project for the digital version of the Yuan since 2014 and there is talk that the Central government hopes to launch a form of e-currency for the 2022 Beijing Winter Olympics that’s why a screenshot of an internal mobile application showing a digital banknote attracted so much attention on social media. For now, the digital Yuan is too theoretical but how would it affect our daily life, how digital currency saves China’s efforts to create a cashless society resemble what is happening elsewhere in the world.

The prevailing drive to go digital is one of the new normal. China is introducing a new digital currency backed by its central bank it is said to make payment easier and faster but an analyst warns it could be used to tighten the regime’s control of the Chinese people. China is testing a new digital currency with a pilot program and Chinese official claims to launch it May 2021. It is set to be the first digital currency used by a major economy after years of development the program began last month in four Chinese cities starting in May some government workers will receive part of their paychecks in the digital currency to use if they need to install an app the currency’s value is pegged to the Yuan, unlike other cryptocurrencies. The PBoC will be the sole issuer of the digital Yuan. Initially, it will be offering digital money to commercial banks and other operators. In contrast, the public would be able to convert money in their bank accounts to the digital version and make deposits via electronic wallets.

Now, the question is China alone at the outset of digital currency then certainly no. As many “Central Bank Digital Currencies” (CBDC) are being thought of across the world. The interest in CBDCs is due to factors like declining cash use and privately owned ‘stable coins’ such as Facebook’s Libra. The Swiss Financial Market Supervisory Authority (FINMA) confirmed in April that it had received an application for a payment system license from the Geneva-based association governing Facebook’s planned cryptocurrency Libra. Similarly, the central banks of France and the UK are also both moving forward in respect of CBDCs. Now, will Pakistan also launch its e-Rupee backed by the State bank? Certainly, shortly, Pakistan will also have to introduce it.

Moreover, there is also a need to understand the China monetary system and e-RMB. In the existing system, there are forms of money supplies and savings like M0, M1, M2, M3, and M4. With e-RMB a part of the Chinese M0 supply will be digitalized. China’s M0 supply stood at 8.3 trillion yuan in 2019 but the annual increase in this has slackened to just 3-4% since 2012 and is impervious to the surges in credit and loans due to the introduction of WeChat Payments and AliPay. The PBoC Governor Yi Gang said all paper money issued and in circulation or deposits will not be affected. Although, the cash system needs to be reformed now. The velocity of the money in circulation will not be disrupted either.

To conclude, we have to analyze how this digital currency will influence the financial dynamics across the globe and how it has threatened the US dollar. Digital payment platforms are already widespread in China, namely Alipay, owned by Alibaba’s Ant Financial and WeChat Pay owned by Tencent but they do not replace the existing currency. With PBoC’s backing, the e-RMB will gain traction fast and give the duopoly of Alipay and Wechat pay tough competition. PBoC has already clarified that transactions facilitated by these platforms fall in the category of M1 and M2 and would not be affected when part of the nation’s MO supply is digitalized. The PBoC is starting trails in Shenzhen, Suzhou, Chengdu, and Xiong’an, a new national development zone on the outskirts of Beijing. The pilot scheme will be expanded to cover high-denomination banknotes. McDonald’s, Starbucks, and Subway were among the 19 mass consumption brands and retailers participating in the trail. A nationwide rollout is expected in two to three years when the PBoC aims to reduce the amount of hard cash it needs to prints. Likewise, ATMs and counters at the bank will become redundant.

The upcoming digital Yuan will be “tokenized” money, fully backed by the Central bank of the world’s second-largest economy. Its value draws from the Chinese state’s ability to impose taxes in perpetuity. Other nationals are bound to follow soon. The token will be a private blockchain, a peer-to-peer network for sharing information, and validating transactions, with the People’s Bank of China in control of who gets to participate. To begin with, the currency will be supplied via the banking system and replace some parts of physical cash. It will not be hard cash, given the ubiquitous presence of Chinese QR-code based digital wallets such as Alipay and WeChat Pay. Indeed, it will start small, but the digital yuan can disrupt both the traditional banking and the post-Bretton Woods system of floating exchange rates that the world has lived with since 1973. For China, blockchain and the Yuan digital currency are a national strategic priority almost at the level of the internet.


Monk, media, and monarchy!

Monk, media, and monarchy!

Hassnain Javed

MAY 4, 2020



“All the world’s a stage, and all the men and women merely players. They have their exits and their entrances, and one man in his time plays many part” —(William Shakespeare)

William Shakespeare rightly explained the human phenomena and their respective interchangeable, multidimensional roles. In the prevalent circumstances, Pakistan is experiencing the trichotomy between Monk (Mullah’s), Media (All forms of media, print, electronic and social) and Monarchy (State and Governance Structure). Are they the victims, persecutors, or rescuers? The key roles are not yet clearly defined in the global pandemic and domestically drama triangle.

The trichotomy defines themselves as victims in some instances or becomes persecutors. As Monks (Mullah’s) are holding massive gatherings when their rights and opinion is not given due importance. Each monk has its way of thinking and interpretation from the Holy doctrine so does their opinion varies. For instance, despite following the same Holy book there is practicing of both Popalzai doctrine and Mufti Muneeb Ur Rehman doctrine on Eid festival announcement every year. The Eid announcement should be unanimous decision nationwide but different doctrines made it a completely different story. On the other hand, media becomes the victim by carrying a black ribbon when media is under attack and their opinions suffered atrocities at the end of persecutors. The situation is no different for the monarchy as every elected ruling government becomes a victim of previous government incapable decisions, corruption, and worse economic and financial position handed over to them. It explains the mechanism of interchangeability between the three constructs.

Monk, media, and monarchy all have to come out of the persecutor and victim role and take the responsibility of rescuer as the main pillars of the economy. The nation will collapse if a similar situation persists

In recent global Covid19 pandemic, initially, monks were portrayed as the persecutors by not adhering to scientific findings despite the Holy book encapsulating all the scientific secrets and truth at the diverse spectrum that enables humans to take advantage and repercussion in every walk of life. It is observed that some of the monks were misguiding their followers for not adhering to the idea of social distancing for preventive measures and considering the scientific measures as obsolete and holding massive gatherings. Although, the Holy book (Quran) provides the scientific methodologies and reasoning for the major aspect of humans and nature whereas the beloved Prophet Muhammad (SAW) teachings and way of life add a further explanation on the given teachings. However, due to multiple monks and their respective dogmatism and doctrines (such as Qadri beliefs, Ghamdi beliefs, Tariq Jamil beliefs, Israr’s belief, etc.) today the Islamic beliefs and religion are unable to play their role as Masaya (Rescuer). Although it is practiced previously by great Islamic philosophers such as Al-Masudi (the pioneer of historical geography), Al-Kindi (pioneer of environmental sciences), Al-Biruni (pioneer of reaction time), Averroes (pioneer of Parkinson’s disease), Ibn E Arabi (the science of divine knowledge),Ibn E Khuldun, Jabir ibn Hayyan (father of chemistry), Ibn Rushd, etc. At the outset of the present pandemic, most of the monks are trying to cover themselves from the label of persecutors and falling apart as victims. Although, this is time to follow the historic footsteps of Islamic philosophers and contribute to innovative inventions amid Covid19 along with disseminating the knowledge that helps educate their illiterate followers.

The very moment and circumstances are not to blame each other play interchangeable roles. Either all the three respective roles, portray themselves as victims or in a certain situation, they slogan as persecutor but none of them in the prevalent pandemic taken the lead as a rescuer. We are living in the era of artificial intelligence where bioengineering, global warming, cyber warfare, and most recently bio warfares have taken the lead roles. Therefore, it is important to identify the grass root problems and channelize how monk, media, and monarchy can effectively play their respective designated roles to resolve the major challenges that erupted in the contemporary world. For this purpose, we need to distinguish between three types of problems that include technical problems, policy problems, and identity problems.

In the case of Pakistan technical problems defines the agreement of China Pakistan Economic Corridor with a lack of expert technical staff to effectively execute the project during the stated timeframe. Pakistan has taken in many such initiatives but unfortunately, it fails to realize to win the marathon it is important that its players are well equipped and eligible. A toddler, who is in the crawling phase, should not be accepted to run and compete for the champions in friction of seconds. It is good to put yourself in challenging tasks but it requires the essential ingredients of passion and clear purpose, which translate into desired performance.

In contrast, policy problems are reform structuring. Pakistan is launching different policies for Small and Medium Enterprises (SMEs), agricultural farmers and Kamyab Naujawan Schemes, etc. but it is important to understand how these policies and programs will become effective for that supportive organs are required to actualize the real motive. For instance, China has established state-owned enterprises (SOEs) but before that, they educate their society on the significance of SOEs, the technical procedures involved to operate and get the benefit of SOEs policies. Moreover, in the wake of Covid19 they didn’t lose hope, and in a brief time with well-functioning supporting organs they are if not fully at least partially recovered and have started moving again whereas the case is opposite in Pakistan where most of its supporting organs are either malnourished or either on ventilators. Pakistan needs to focus on policy problems that are optimistic and realistic and holds the bitter truth and grey realities of its economy at hand. The major concern for the Pakistan monarchy should be dealing in the post Covid19 world when there will be a massive paradigm shift and world operating with new dynamics.

Besides this, identity problems indeed Pakistan is surfaced with identity crises, we, as a nation is not united there are major inter-provincial conflicts. The common Pakistani national desire to have its luxurious apartment amid the scenic and refreshing breeze of Switzerland, high-class well-functioning CEO office in the Wall Street, United States, five-star pilgrimage packages for performing prayers and the final coffin to buried in Jannat ul Baqi (Medinah) thus no affiliation with motherland Pakistan. They did not agree with idea of be Pakistan and buy Pakistan. This explains the identity problems in our economy. The world economies have experienced success on the grounds of nationalism and unity and have experienced the downfall of their mighty empires due to weakening fundamentals.

To conclude, monk, media, and monarchy all have to come out of the persecutor and victim role and take the responsibility of rescuer as the main pillars of the economy. The nation will collapse if a similar situation persists. There is no longer time to waste indeed we as an individual launch the movement to act as rescuer and educate our fellows to act and behave as a Masaya. Lastly, I extend my tribute to Edhi Sahab how being a common person he laid his life as a Masaya for Pakistan keeping his self-interests aside.