Much has been said in the past few days about China’s role and role in the crypto world, but little about the stealthy digital advancement of stablecoins in countries like China.
On September 20, Cointelegraph reported on the test that Conflux will carry out with the stablecoin RMB within the free trade zone. This shows the progress that has been made over the past 3 years. What does it mean for the crypto world?
Let’s start by defining what a CBDC, or central bank digital currency, is. Put simply, it is the proposals of the central banks to digitize FIAT money according to their own economic and financial aspects.
There is debate about whether a CBDC should be considered a cryptocurrency when managed by a central bank, but it is certainly important to keep it on your radar as its success or failure will affect the crypto space. CBDCs living in a fully digital ecosystem, as cryptocurrencies like Bitcoin and Ethereum are used to, create confusion by mixing concepts like interoperability and database.
According to the BIS, Bank International Settlements or better known the Central Bank of Central Banks under the leadership of the Mexican Agustin Carstens, the stable digital currencies of the central banks will offer certain advantages such as the purpose of liquidation as well as liquidity and integrity.
According to the same institution, CBDCs for retailers could guarantee open payment platforms and a level playing field that lead to innovation. In the same way technology can foster a positive cycle of better access, lower costs and better services, it could also create a vicious circle of data silos, market power and anti-competitive practices. According to the BIS, CBDCs and open platforms are more conducive to a positive cycle.
In addition, the BIS believes that digital identification-based CBDCs could improve cross-border payments and limit the risks of currency substitution by overcoming the barriers to cross-border digital ID sharing, but require international cooperation for agreements of this magnitude.
Yesterday September 28th, Cointelegraph reported on the new BIS report entitled “Inthanon-LionRock to Bridge: Building a Multi CBDC Platform for International Payments”. to five working days to seconds.
CBDC in China
There are various CBDC proposals out there, but the one that has undoubtedly attracted the most attention is related to the Chinese government because of the impact it could have on the cryptocurrency world and economy.
September 15, Shanghai Maritime University announced the establishment of the Shanghai ShuTu Blockchain Research Institute, a branch of the Conflux Institute, the blockchain network that Sequoia Capital and Huobi Ventures have as investors.
According to a note released by Conflux, the institute will promote the application of blockchain technology in the Shanghai Free Trade Zone, including research into cross-border trading in the Renminbi Stablecoin (RMB).
These initiatives are part of China’s five-year plan, which focuses on Shanghai as the hub of global free trade and shipping in China.
In July, the Chinese government gave Shanghai permission to explore free trade in an offshore RMB stablecoin; China’s only free trade zone to pilot RMB trade.
The meaning of this lies in the difference between the CNH and the CNY. CNH refers to the Chinese yuan in the offshore market that is outside mainland China (the onshore market). China’s capital markets, including the foreign exchange market, are controlled and not yet fully open.
This leads to different characteristics of the Chinese currency in the onshore and offshore market, and therefore two tickers are assigned to distinguish them. In mainland China, the Chinese yuan is called CNY. On the other hand, the offshore market includes traditional yuan centers such as Hong Kong (a special administrative region of China), Singapore, London, and newly developed centers such as Luxembourg.
It seems that there are two fronts or realities in one of the most important economies in the world. On the one hand the zero or scarce relationship to decentralized cryptocurrencies such as Bitcoin and Ethereum, on the other hand a controlled space to explore the future of digital money with CBDCs and to learn more about it.
For the past 12 years we have seen the development and growth of cryptocurrencies in the world, but we still have no reference to CBDC proposals, which opens up a universe of opportunities and challenges for the future that will undoubtedly be fascinating.