CBDC Facilitating Development of the Emerging Market
by Dr. Wilson CHAN
Associate Director of MBA Programme, City University of HK
During the 40th anniversary of Shenzhen's reform, Shenzhen (China) has once again been designated as one of the key engines in the Greater Bay Area (GBA) by the Beijing Government. The introduction of Central Bank Digital Currency (CBDC) in the GBA is timely and prominent with far-reaching implications in response to the suppression from the US and the rising systemic risk of the US dollar.
Falling and Deceiving, Chaotic International Order
Almost 75 years ago, the United Nations (UN) was founded after World War II to reorganize world order. Headquartered in the US, the UN has incorporated many specialized agencies into the organization. These agencies, such as the WHO and World Bank, are controlled and dominated by their largest funding countries. The International Monetary Fund also appeared to have become a global equitable standard-setting organization.
After the US replaced the UK as the world's largest economy, it took nearly half a century for the US dollar to surpass the British Pound and become the world and global reserve currency (Ray Dalio, Bridgewater Associates, 2020). The dollar was backed by gold such that other currencies could be effectively pegged against both the US Dollar and gold (Bretton Woods System). This new US Dollar status contributed to the European Recovery Program (the Marshall Plan). Unfortunately, in the early 1970s, the dollar was suspended for gold convertibility, leading to a floating exchange rate. However, the role of the US Dollar remained bold and even more prominent in the international currency market by adopting “long-arm jurisdiction” to curb anti-money laundering.
In recent years, the US economy has been declining. Grants and subsidies for international organizations reduced, and the US government has repeatedly withdrawn from international treaties, such as The Paris Climate Agreement and UPU. Moreover, based on its unilateral judgment, it fails to follow international practices to impose sanctions on Iran. US regulators commonly impose huge fines on various international financial institutions. As a result of the economic downturn in the US, many sectors are lagging behind other countries; and politicians are doing whatever possible to secure their votes. These will inevitably cause an unstable international order.
Rising and Overtaking, Emerging Financial Crisis
Furthermore, after the post-War collapse of colonialism, most developing countries in the world went through the process of rebuilding. Historically and practically, they had different problems or issues to handle. For example, there was the Cultural Revolution in China and other different cases in countries like Vietnam and Myanmar. All these countries had boarded the train of reform to become vibrant emerging markets.
To surmount previous grief and "cross the river by feeling the stones", to improve the livelihood of the people by being reformative and innovative, and ultimately to achieve an all-rounded well-off society - this is something that China has been doing. There is no such thing as a perfect world. China became the world's biggest manufacturer at the cost of environmental pollution and a cold-hearted society, and thus further reform and opening up are needed.
The US is behaving brutally like a bully against China almost in every aspect. For instance, it plays a high-profile role in supporting media that are anti-Chinese Communist Party (The U.S. “China Task Force Report”, 2020.9.30.), so to tarnish the international image of China. The US also suppresses Chinese technology companies and threatens to make financial sanctions. Hence, the US dollar system has gradually become a high risk to China (as well as other countries).
At this critical moment, Shenzhen has been entrusted with the role (see diagram) of leading the GBA to formulate a new system that facilitates the Dual-cycle Model, that can be replicated to the whole of China and radiated to other emerging countries in Southeast Asia. The CBDC is a new technology that eliminates linkage with the US dollar. For cross-border use, Hong Kong, as the offshore RMB center, will be able to contribute its relevant professional expertise.
China has already been the major trading partner of most countries in the world. In the next three to five years, the CBDC will certainly facilitate Shenzhen, together with China, to take off once more.