The move towards central bank digital currencies (CBDCs) “is gaining momentum, driven by the ingenuity of Central Banks.”
As a barrage of Western sanctions visit all manner of pain upon Russia’s economy, attention is turning in some quarters to potential ways of circumventing U.S. economic sanctions in the future. One potential weapon for defanging future sanctions is central bank digital currency (CBDC) networks, according to Lewis McLellan, the digital editor of the Digital Monetary Institute of the Official Monetary and Financial Institutions Forum (OMFIF):
Cross-border central bank digital currency networks are in development across Asia (like the mCBDC Bridge, which involves Thailand, Hong Kong, China and the United Arab Emirates). Russia’s central bank is working on a digital rouble and Governor Elvira Nabiullina has expressed interest in its value as a means of facilitating cross-border payments, particularly with China.
The digital yuan could also be pressed into service. It is widely usable within China and is likely to be accepted by anyone with costs or liabilities in China. Even dollar stablecoins, which are growing in scale and importance, could help form the backbone of a payments network that cannot be curtailed by revoking access to Swift or the Fed’s clearing system. There is no evidence that China intends to help Russian businesses circumvent sanctions — they are likely to face their own sanctions if they do — but if the dollar payments network is becoming a tool of foreign policy, it adds a new sense of urgency for some to develop an alternative.
Beijing Expands Public Testing of Digital Yuan
The digital renminbi is the first CBDC to be issued by the central bank of a major economy and has been undergoing public testing since April 2021. China’s testing of CBDCs has so far taken place in ten cities and regions (Shenzhen, Suzhou, Chengdu, Xiong’an, Shanghai, Hainan, Changsha, Xi’an, Qingdao and Dalian). According to Chinese state-backed financial media outlet Securities Times, Beijing is on the verge of launching trials of its digital yuan currency in a third batch of localities, which could include Henan, Fujian and Heilongjiang provinces, and the cities of Guangzhou, Chongqing, Fuzhou and Xiamen.