Name: Eastworld Spotlight: Unpacking China’s central bank digital currency
Uploaded: 2020-06-26
Duration: 7 min 52 s
Description: Radian Partners' Jennifer Zhu Scott discusses the CBDC's innovations and challenges.

[MUSIC PLAYING] CLAY CHANDLER: Jennifer Zhu Scott is the founder of Radian Partners, and has been a co-chair of our Fortune Global Forum in Guangzhou. And is an expert on all things related to China tech. But we're particularly interested today in talking a little bit about China's Central Bank digital currency. And what do we call this thing that China is working on? JENNIFER ZHU SCOTT: The Chinese digital currency, the Central Bank backed currency, is essentially a digital form of existing sovereign currency, which is RMB. The Central Bank has been working on this for a long time. And China has already long become the largest cashless economy in the world for quite a few years now. When we are using WeChat pay or Alipay, that's still directly associated to our bank account or directly associated to our debit cards or credit cards. CLAY CHANDLER: So it would be similar to WeChat pay and Alipay, except that it would be operated by the Central Bank? Is that correct? JENNIFER ZHU SCOTT: For individual users on the front end, I would expect that the difference for them would be very few, right? They will still scan a QR code, or go to a shopping mall. Their action of the process of the payment would still be quite similar. But the difference is the back end-- the back end-- is the ledger controlled by basically two companies linked to the existing financial system, or is it a ledger controlled by Central Bank? CLAY CHANDLER: When people think about digital currencies, perhaps in the United States at least, a lot of people what comes to mind is Libra, the proposal that Facebook has put forward. How would what China is discussing be similar or different from Libra? JENNIFER ZHU SCOTT: Libra is fundamentally different from previous digital currencies. Where PBOC's digital currency is an extension of a fiat currency coming from a central bank. Whereas Libra is coming from a private corporation, and trying to promote this international cross-border payment system. CLAY CHANDLER: Help us understand a little bit about the timing for some of these discussions-- why the PBOC might be so interested in rolling this out now? JENNIFER ZHU SCOTT: There are two major factors-- one is domestic and one is international. We still have about 60 million people living under poverty in China, and a lot of them are really spread out in the very rural areas in China. It's not because the central government doesn't have money to send to the local government, but the layers of the bureaucracy, inefficiency, and corruption really became a cost and a barrier for the central government to do this very effectively. So if the Central Bank starts to have digital currency, then in theory, all the central government need to do is to give every single family a phone. And that has a built in digital wallet in it. And with that, not only you can you directly send aid from Beijing to all of the rural area families in China. And you can also track how much of their money is actually used to buy fertilizers or agriculture needs or education? And be able to not only just elevate that the last batch of people in China living under poverty efficiently, but also with intelligence. Understand their behavior, and what they actually need. China, as it's expanding its global role, especially in developing countries, and relying on the resources and relying on those countries. And China, with a lot of those countries, even with bilateral trade, they still rely on US dollars, right? So we've seen how much the US dollar trade became-- the US government's sanction has been weaponized. And with this kind of weaponization, even without a trade war, even without our own political climate, a sensible question to ask is how much I am exposing my trade in this political risk, when this bilateral trade doesn't actually involve the US? So a sensible thing for China to do is to find a way to trade without the US dollar. So if Central Bank can issue a digital currency, then you could even write it into the code which part of the money can go outside and become part of the aid or loans going to build in rural countries. And they can in return use that infrastructure related to projects with China. And in fact, that kind of displaces the US dollar in those bilateral spaces between China and those countries. CLAY CHANDLER: Digital currencies is currently being rolled out, as of a month ago, in four or five Chinese cities, right? JENNIFER ZHU SCOTT: Correct. CLAY CHANDLER: What do we know about those cities so far? JENNIFER ZHU SCOTT: The short answer is not much. I think the trial process has been somewhat separative. And we don't really know what's the result in funding. We're probably quite close to seeing a launch of digital currency in China. But I do think there are some hesitations and concerns within China. As we all know, the Chinese banking system is not very well established. There are a lot of problems with the existing banking system. So when Central Bank issues digital currency, in theory small businesses and individuals will be able to directly have an account with Central Bank. And what will leave all of the commercial banks and all the retail banks, especially local banks, too. And would that bring a total overhaul of the existing banking system? It's very hard to-- it's a very difficult task to assess, to carry out. CLAY CHANDLER: So the way to think about this is that right now they're still in the trial phase, and they're still deciding whether-- when to formally launch it nationwide. JENNIFER ZHU SCOTT: I bet it's not very long from now. I think-- yeah, we're probably talking about months. No more than one or two years. Because the infrastructure is already there. The relationship between Tencent and Alibaba probably will become facilitators. And I would not be surprised if there are already agreements in place between Alibaba and Tencent between Central Bank. CLAY CHANDLER: I just want to ask about the privacy issues associated with creating a digital currency in China. I mean, this obviously has been a concern for Libra discussions as well. JENNIFER ZHU SCOTT: We must all recognize that a society is bigger than individual existence. Of course, as an individual I prefer my privacy is protected and I prefer my personal freedom. But when the public health, and from a public security issue, and the entire society is threatened by the same disease, I think every individual will have to deal with the trade off. CLAY CHANDLER: Wow. Fascinating. Jennifer, always great to talk with you about the latest trends on China's technologies. We learned a lot. Thanks very much for your time. JENNIFER ZHU SCOTT: Thank you very much for having me. 

Eastworld Spotlight: Unpacking China’s central bank digital currency

International

Then innovation it brings, and the challenges it faces.

Unpacking China’s central bank digital currency

Radian Partners' Jennifer Zhu Scott discusses the CBDC's innovations and challenges.