Digital yuan

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As China develops its digital currency, Australia tables a bill that aims to set an example for the region in monitoring and reporting requirements. James King reports.

When general secretary Xi Jinping addressed the National Congress of the Communist Party of China (CCP) this month, he called for “mechanisms countering foreign sanctions, interference and long-arm jurisdiction” to be strengthened and for “financial security” to be enhanced. The development of China’s central bank digital currency (CBDC), the digital yuan, could fulfil many of these aims.

Successful domestic trials are today being complemented by cross-border experiments with partner jurisdictions, opening the door to a new system of international payments that will help to shield Beijing from US sanctions and project Chinese power abroad. 

In this respect, the CCP’s ambitions for the digital yuan are no secret. Robert Greene, a non-resident fellow at the Carnegie Endowment for International Peace, has noted that a string of state-affiliated figures, as well as the People’s Bank of China, are pushing for the digital currency’s use in cross-border payments. Some of these individuals emphasise the digital yuan’s future as Asia’s regional currency in the context of Beijing’s dominant trade and investment relationships. 

The ultimate goal is to diminish China’s reliance on US dollar-denominated payment structures, to internationalise the yuan and to lay the foundations for a competing, global payments network.

Digital yuan leads the charge

Today, the digital yuan is being tested on a cross-border basis with Thailand, the United Arab Emirates and Hong Kong, in partnership with the Bank for International Settlements, under an embryonic multi-CBDC framework known as ‘mBridge’. The project is solving the challenge of CBDC interoperability: how to get two or more digital currencies to interface for the purposes of a cross-border payment. To achieve this, the participants are creating governance and regulatory rules that are shared across a common payments corridor. 

This means the People’s Bank of China, which also chairs mBridge’s technology subcommittee, sits at the vanguard of efforts to develop the standards for an entirely new payments infrastructure. As the world’s largest and most important CBDC, the digital yuan is a first-mover when it comes to deploying the technology at scale. 

“China gets the chance to rewrite the rules for international finance because they will be the leading and the biggest player in that game. And their technology is likely to underpin [this new financial order],” says Andy Hutchings Broso, an Australia-based blockchain entrepreneur and strategic advisor.

Australia responds by bill

These developments have not gone unnoticed in Western capitals. In a striking reflection of the issue’s geopolitical dimensions, a small but growing number of legislative proposals are emerging in response to the project. Chief among these is the draft private member’s bill of Liberal Party of Australia senator Andrew Bragg, who also chairs the Australian Senate’s Economics References Committee. 

Senator Bragg’s ‘Digital Assets (Markets Regulation) Bill 2022’ includes a dedicated section on ‘digital yuan facilitation’ in Australia. It is among the earliest attempts to develop a monitoring and reporting regime for the digital yuan anywhere in the world. 

the advent of a digital yuan does present significant security and economic implications

Senator Andrew Bragg

Specifically, it proposes that seven Chinese banks, including the Industrial and Commercial Bank of China and the Agricultural Bank of China, be subject to reporting requirements, linked to the Reserve Bank of Australia and the Australian Prudential Regulation Authority, if they have facilitated the use, or availability of, the digital yuan in Australia over the past 12 months. 

This includes reporting information on the number of Australian businesses that have accepted payments using digital yuan, the number of digital yuan wallets for Australian customers of these institutions, and the total amount of digital yuan held in these wallets. 

“The advent of a digital yuan does present significant security and economic implications. It is possible that a CBDC like this could take off in our region, particularly where there are legions of unbanked individuals in the Pacific. We have to at least have a plan to manage and monitor the enormous accumulation of power that this hypothetical will deliver,” says Mr Bragg.

Leading by example

Crucially, Mr Bragg sees the draft bill as a first attempt to develop a policy blueprint in response to the digital yuan, an approach that could be applied elsewhere. “Australia should be the region’s key partner on policy formulation. And that’s really what we’re testing domestically now, to see how our own domestic reporting regime would work on these matters,” he says.

“What I don’t want to see is for a CBDC, or multiple CBDCs, to take hold in our region and for there to be no reporting regime in place, and therefore no regulatory sovereignty. A nation which is not as strong as Australia could very quickly lose control of its economy and cede foreign surveillance of its citizens without even knowing it's happening. So what I’m trying to do is to front-end [these efforts],” says Mr Bragg. 

The draft bill’s consulting period expires at the end of October, meaning further changes can be expected as a result of feedback. And even though the final bill’s structure and long-term prospects remain unclear, the thinking behind it could play an influential role in shaping Australia’s and partner countries’ response to the digital yuan moving forward. 

“The intent is very clear. If a Chinese CBDC is to be used in Australia, there will need to be powers to monitor that immediately. That’s the only question now,” says Mr Bragg.


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