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Could the digital Renminbi address China’s vulnerability to the global financial system?

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The international financial system is dominated by the US. Washington has often used its clout in the international financial system to further its economic and geopolitical interests through financial sanctions. As antagonism between the US and China moves beyond trade and technology, how the US-China rivalry will play out in the new stage of international finance is a matter of great concern to the world.

China has been working on a Central Bank Digital Currency (CBDC) since 2014, and is intensifying its efforts to internationalise the Renminbi.

On the surface it appears the CBDC will be for domestic use, but a CBDC will simplify cross border transactions. For a long time, the country has been dissatisfied with the U.S. Dollar’s (USD) ongoing role as the global reserve currency and is committed to extending its currency’s reach.

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It even has an initiative to denominate international trade credit in Renminbi (RMB) rather than dollars. And the Belt and Road Initiative has seen China extend more than $1 trillion in foreign loans.

At a recent online global seminar organised by the Pangoal Institution China and the Centre for New Inclusive Asia Malaysia, experts from China, Russia, Europe and the US deliberated and disussed the issue.

One of the key speakers was Mr Ali Amirliravi, CEO and Founder of LGR Global  and creator of the Silk Road Coin digital currency.

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Mr Ali Amirliravi, CEO and Founder of LGR Global

Mr Ali Amirliravi, CEO and Founder of LGR Global

He addressed China’s vulnerability to the global financial system, and said:

“This is a very interesting question as there are a lot of factors to consider. To begin, I think it might be helpful to define China’s vulnerabilities specifically. We are speaking about international finance here (it’s a very complex and politically charged system) and since the second world war, the space has been more or less dominated by the interests of the US. We see this in the global dominance that the US dollar has held for the last 70 years. We see that in the steps that Washington has taken to ensure that the dollar acts as the global reserve currency - particularly in industries like the global oil trade. Up until quite recently, it was probably difficult to even imagine a global financial system that was not directly supported by the US dollar.

By virtue of this global reliance, the American political machine was given significant power to wield in international finance. The best evidence of this can probably be found in the history of crippling economic sanctions that the US has enacted against specific states - the impacts of which can be devastating. In a nutshell, it’s an asymmetrical power dynamic wherein the US has carved out a significant negotiating  advantage over other countries.

Put it this way: when the global economic system is built to fit the domestic currency of a specific state, it is easy to see how that state would be able to tailor certain policies and promote behaviours that would further their own geopolitical interests - this has been the American reality for the last few decades.

But things change. Technology advances, political relationships evolve, and international trade and money flows continue to expand and grow - now incorporating more people, countries and businesses than ever before. All of these factors (economic, political, technological, societal) work to shape the reality of the international order, and we are now at a place where a serious discussion about a replacement for the US dollar is warranted - that’s why I am excited to be here speaking about this issue today, it’s really time to have the conversation.

So, now that we have set the scene, let’s tackle the question: could the creation of a digital Renminbi address the vulnerability and asymmetry that China is dealing with in international finance? I really don’t think this is a simple yes or no answer here, in fact I think it is valuable to consider the question with a broad outlook on development over the next few years.

 

SHORT-TERM

Starting with the short term, let’s put the question like this: will the digital renminbi have significant impact internationally immediately following launch. The answer here I think is no, and there are a few reasons for that. First of all, let’s consider the intention of the issuer, the Chinese central bank. Reports show that the initial focus of the DRMB project is domestic, the Chinese government is looking to challenge private sector digital payment methods like AliPay etc., and getting the broader population used to the idea of Central Bank-issued digital currencies powering the majority of economic transactions in the country. To put it simply, the scope of the first stage of the DRMB launch is too small and domestically focused to directly impact the international system - there just won’t be enough DRMB in circulation globally.

There is another point to consider in the short-term: voluntary acceptance. Even if stage one of the DRMB project did have an international focus and was committed to minting huge amounts of digital currency, international impact requires international use - meaning that other countries would have to voluntarily accept and support the project in the early stages. How likely is this to happen? Well it’s a bit of a mixed bag, we’ve seen a few agreements start to pop-up between China and some countries in Central Asia as well as South Korea and Russia, which outline future frameworks for DRMB acceptance and trade, however there isn’t too much in place yet. And that’s just it: before the DRMB can have international impact, there needs to be widespread international access and acceptance, and I don’t see that happening in the short-term.

 

MID-TERM

Let’s move to a mid-term analysis. So imagine that phase 1 of the DRMB is complete and we have individuals and corporations in China accepting, transacting and trading it. What will phase 2 look like? I think we will start to see China expanding the scope of the DRMB project and incorporating it into their international development and infrastructure projects. If we consider the scope of the Belt and Road Initiative and China’s commitments and focus on development and investment across central Asia, Europe and parts of Africa, it is clear that there are many opportunities to promote and incentivize use of the DRMB internationally.

A great example to consider is the group of countries that make up the Silk Road area (about 70 countries). China is participating in infrastructure projects here, but it is also promoting increased trade in the area - and that means a lot of money moving cross-border. This is actually an area that my company LGR Crypto Bank is focused on - our goal is to make cross-border payments and trade finance transparent, fast and secure - and in an area with over 70 different currencies and incredibly disparate compliance requirements, this is not always an easy task.

Here is precisely where I think the DRMB could add a lot of value - in clearing up the confusion and opacity that comes with cross-border money movement and complex trade finance transactions. I believe that one way the DRMB will be marketed to China’s trade and development partners is a way to bring transparency and speed in complicated transactions and international transfers. These are real problems, especially in the multi-commodity trade business, and they can cause serious delays and business interruptions- If the Chinese government can prove that adoption of the DRMB will address these issues, then I think we will see real eagerness in the market.

At LGR Global, we are already researching, modelling and designing our own money movement and trade finance platforms to work in harmony with digital currencies, particularly our own Silk Road Coin and the Digital Renminbi - we are ready to offer customers the best in class finance options as soon as they are made available.

When it comes to the international stage, I think that China will use its BRI as a proving ground for the DRMB in real-world commerce. By doing this, they will start to develop a network of DRMB acceptance across the Silk Road Countries and will be able to point to successful infrastructure projects as proof of the success of the Digital Renminbi. If this phase is carried out properly, I think it will create a very good foundation of DRMB acceptance that can be built on and expanded globally. The next step would likely be Europe - this is something of a natural extension of the Silk Road Area, and also ties in to the reality of increased trade between the EU and China. It’s important to note that if we consider all of the domestic economies that make up the Euro block together, it is the largest importer/exporter in the world- it would be an incredible opportunity for China to bring international attention to the DRMB and prove its capabilities in the West.

 

Long-term

In the long-term, I do think that it is possible for the DRMB to gain high levels of international traction and achieve some level of global acceptance. Again, it will all depend on the success of the Chinese government in making the case for adoption throughout the earlier phases. The value propositions of central bank digital currencies are very clear (increased transaction speed, improved transparency, fewer middlemen, less delays, etc.), and China is certainly not the only one developing such an asset. Currently, however, China is a leader and if they can execute an expansion plan without too many issues along the way, this head-start could make it difficult for other state offerings to catch-up. Maybe not, though.

It could be that in the long-term, all states will have a sovereign digital currency - and this begs the question: in the age of digital currencies, is there still a need for a global reserve currency? I’m not sure. What would the value add be of a reserve currency when central bank digital currencies could be traded effortlessly with immediate settlement times? Maybe reserve currencies will simply become a relic of an outdated financial system.

Looking forward to the long-term, I can imagine 2 scenarios where the DRMB could alleviate China’s vulnerabilities in the international financial system:

  • The DRMB becomes the new world reserve currency
  • The notion of a world reserve currency becomes obsolete and the new economic order runs on state-backed digital currencies operating without a hierarchy.

Whatever happens, I do believe we are on the cusp of a major change in global finance. There is no doubt that digital currencies, specifically central bank digital currencies, will play a massive role in defining the new economic paradigm. I believe that China is making great moves in leading the pack on this, and I know that at LGR Global we look forward to adopting the DRMB where we can to further optimize and expedite the money movement and trade finance solutions that we offer to our customers.

 

 

China

Lithuanian cybersecurity agency finds Chinese phones risk personal data leakage

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The National Cyber ​​Security Center under the Ministry of National Defense (NKSC) of Lithuania conducted a security investigation of the Chinese manufacturers Huawei P40 5G, Xiaomi Mi 10T 5G and OnePlus 8T 5G smart 5G devices sold in Lithuania.

“This study was initiated in order to ensure the safe use of 5G mobile devices sold in Lithuania and the software contained in them within our country. Three Chinese manufacturers have been selected who have been offering 5G mobile devices to Lithuanian consumers since last year and who have been identified by the international community as posing certain cyber security risks,” said Margiris Abukevičius, deputy minister of national defence.

The study identified four key cyber security risks. Two relate to gadgets installed on the manufacturer's devices, one to the risk of personal data leakage and one to possible restrictions on freedom of expression. Three risks were identified at Xiaomi's device, one at Huawei, and no cyber security vulnerabilities were identified at OnePlus' mobile device.

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Risks for gadgets manufacturers

Analyzing Huawei's 5G smartphone performance, the researchers found that the device's official app app store, App App, which does not find the user-requested app, automatically redirects it to third-party email. stores where some gadget antivirus programs have been rated as malicious or infected with viruses. Researchers have also attributed cyber security risks to Xiaomi's Mi Browser. It uses not only the standard Google Analytics module in other browsers, but also the Chinese Sensor Data, which collects and periodically sends up to 61 parameter data about the actions performed on the user's phone.

“In our opinion, this is really redundant information about user actions. The fact that this rich statistical information is sent and stored in an encrypted channel on Xiaomi servers in third countries where the General Data Protection Regulation does not apply is also a risk,” said Dr. Tautvydas Bakšys.

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Restrictions on freedom of expression

Analyzing the performance of the Xiaomi device, the researchers found that it had the technical capability to censor the content downloaded to it. Even several manufacturer's gadgets on your phone, including the Mi Browser, periodically receive a manufacturer's blocked keyword list. When it detects that the content you want to send contains words in the list, the device automatically blocks that content.

At the time of the study, the list included 449 keywords or groups of keywords in Chinese characters, such as "Free Tibet", "Voice of America", "Democratic Movement" "Longing Taiwan Independence" and more.

"We found that the content filtering function was disabled on Xiaomi phones sold in Lithuania and did not perform content censorship, but the lists were sent periodically. The device has the technical capability to activate this filtering function remotely at any minute without the user's knowledge and to start analyzing the downloaded content. We do not rule out the possibility that the list of blocked words could be compiled not only in Chinese but also in Latin characters,” added Bakšys.

Risk of personal data leakage

The risk of personal data leakage has been identified on a Xiaomi device when a user chooses to use the Xiaomi Cloud service on the Xiaomi device. To activate this service, an encrypted SMS registration message is sent from the device, which is not saved anywhere later. "Investigators were unable to read the contents of this encrypted message, so we can't tell you what information the device sent. This automated sending of messages and the hiding of their content by the manufacturer poses potential threats to the security of the user's personal data, because without his knowledge, data of unknown content can be collected and transmitted to servers in third countries," added Bakšys.

Lithuania has already incurred China's rancour; in August, Beijing demanded that it recall its ambassador after it established a representative office in Taiwan, which claims that Taiwan (Republic of China) is part of China (People's Republic of China).

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Competition: EU, US and the People's Republic of China participated in the Fifth Global Maritime Regulatory Summit

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On 7 September, senior government officials from the EU, the US and the People's Republic of China participated in the Fifth Global Maritime Regulatory Summit. Participants included representatives of the competition and maritime authorities responsible for regulating international liner shipping in the world's largest liner trade lanes.

The summit covered sectoral developments since the start of the coronavirus pandemic, including the challenges faced by the international container transport sector and broader issues of maritime supply chains. Participants agreed that the pandemic presented operators in shipping companies, ports and logistics services with exceptional challenges, on routes to and from the EU as well in other parts of the world.

They exchanged views on the respective actions undertaken by their jurisdictions, as well as future outlook and perspectives, including possible actions to increase the resilience of the sector. The summit takes place every two years and is a forum to foster cooperation between the three authorities. The next summit will be convened in 2023 in China.

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Reimagining a more resilient UN system with Taiwan in it

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After more than 200 million infections and over 4 million deaths and counting, the COVID-19 pandemic has raged across the globe. This has created a profoundly devastating socio-economic impact on our interconnected world, with virtually no countries spared. The pandemic has disrupted global trade, exacerbated poverty, impeded education, and compromised gender equality, with middle to low income nations bearing the brunt of the burden, writes Jaushieh Joseph Wu, Minister of Foreign Affairs, Republic of China (Taiwan) (pictured, below).

As many countries brace for another spike of the virus, prompted by the highly contagious Delta variant, the world looks up to the United Nations (UN) to ramp up comprehensive efforts to resolve the crisis, ensure better recovery, and rebuild sustainably. This is a daunting task that requires all hands on deck. It is time for the global body to welcome Taiwan, a valuable and worthy partner that stands ready to lend a helping hand.  

Over the past few months, Taiwan, like many other countries, has been dealing with a surge of COVID-19 cases after almost a year of success in containing the virus. Yet, it got a handle on the situation and emerged even more ready to work with allies and partners to tackle the challenges posed by the pandemic. Taiwan’s effective response to the pandemic, its rapid capacity expansion to meet global supply chain demand, and its substantive assistance toward partner countries around the world all speak to the fact that there is no lack of compelling reasons for Taiwan to play a constructive role in the UN system.

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However, under pressure from the People’s Republic of China (PRC), the UN and its specialized agencies continue to reject Taiwan, citing the 1971 UN General Assembly Resolution 2758 (XXVI) as a legal basis for this exclusion. But the language of the resolution is crystal clear: it merely addresses the issue of China’s representation in the UN; there is no mention of Chinese claim of sovereignty over Taiwan, nor does it authorize the PRC to represent Taiwan in the UN system. The fact is, the PRC has never governed Taiwan. This is the reality and status quo across the two sides of the Taiwan Strait. The Taiwanese people can only be represented on the international stage by their popularly elected government. By falsely equating the language of the resolution with Beijing’s “one China Principle,” the PRC is arbitrarily imposing its political views on the UN.

The absurdity doesn’t end there. This exclusion also obstructs the participation of Taiwan’s civil society. Taiwanese passport holders are denied access to UN premises, both for tours and meetings, while Taiwanese journalists cannot obtain accreditation to cover UN events. The only reason for this discriminatory treatment is their nationality. Barring members of Taiwan’s civil society from the UN defeats the ideal of multilateralism, contravenes the UN’s founding principles of promoting respect for human rights and fundamental freedoms, and hampers the UN’s overall efforts.

For six decades, Taiwan has been providing assistance to partner countries around the world. Since the adoption of the UN 2030 Agenda, it has focused on helping partners achieve the Sustainable Development Goals (SDGs), and, more recently, engage in antipandemic response and postpandemic recovery. Meanwhile, at home, Taiwan has fulfilled its SDGs in gender equality, clean water and sanitation, and good health and well-being, among others. Our innovative, community-based solutions are harnessing public-private partnerships for the benefit of society as a whole.

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The World Happiness Report 2021, released by the Sustainable Development Solutions Network, ranked Taiwan the happiest in East Asia, and 24th in the world. The ranking indicates how the people of a country feel about the social support they receive, and reflects in large part a country’s implementation of the SDGs. Taiwan is willing to pass on its experience and work with global partners to build a better and more resilient future for all.

At a time when the world is sounding the clarion call for climate actions and to achieve net-zero carbon emissions by 2050, Taiwan is actively charting a roadmap toward the goal, and has drafted dedicated legislation to facilitate this process. Climate change knows no borders, and concerted efforts are a must if we want a sustainable future. Taiwan knows this, and is working on the best ways to turn the challenges of carbon reduction into new opportunities.

In his oath of office in June this year, UN Secretary-General António Guterres stressed that the COVID-19 pandemic has revealed our shared vulnerability and interconnectedness. He said that the UN, and the states and people it serves, can only benefit from bringing others to the table.

Denying partners that have the ability to contribute is a moral and material loss to the world as we seek to recover better together. Taiwan is a force for good. Now is the time to bring Taiwan to the table and let Taiwan help.

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