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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.

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 Crypto Bank of Switzerland. and creator of the Silk Road Coin digital currency.

Mr Ali Amirliravi, CEO and Founder of LGR Crypto Bank

Mr Ali Amirliravi, CEO and Founder of LGR Crypto Bank

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.

LGR Crypto Bank of Switzerland

LGR Crypto Bank of Switzerland

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 Crypto Bank, 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 Crypto Bank 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

Cambridge Wireless and Huawei partner to build the first private 5G testbed in Cambridge Science Park

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CW (Cambridge Wireless), an international community for companies involved in the research, development and application of wireless technologies, is teaming up with the global technology leader Huawei, to deploy and build Cambridge’s first 5G mobile private network within the Science Park.

The new set-up will allow Cambridge’s world-renowned technology community to undertake cutting edge new digital research and application in key areas such as autonomous vehicles, clean energy and remote surgery.

The 5G testbed will go live in January next year and kicks off a three-year partnership between Cambridge Wireless and Huawei, which will involve digital training, business support and joint events.

The aim is to explore how advanced wireless technology can have a far-reaching impact on both society and the economy.

“We are constantly working to provide value to CW members,” said CW CEO Simon Mead. “As home to one of the world’s most advanced R&D ecosystems, Cambridge is perfectly positioned for the rollout of next-generation wireless technology and we’re delighted to be driving this initiative with our partners. We hope to bring something unique to the Science Park to accelerate use cases and development of this technology. We invite ambitious businesses to get involved and through this exciting 3-year partnership with Huawei, we will support their 5G innovation journey.”

Huawei Vice-President Victor Zhang described the partnership as a key part of the business’s ongoing commitment to the UK. He said: “Huawei’s success is built on a relentless drive for innovation and we are able to keep pushing the boundaries of technology when we partner with those who share this ambition. The Cambridge eco-system is recognized as a global leader in technology and we are excited to work with the talent and vision in this eco-system. We hope to enable Cambridge Wireless members to reach new heights by allowing them access to our state-of-the-art equipment and markets including China and beyond. Our commitment to the UK and industry remains as strong as ever and we will continue to offer our expertise and technology to our partners to promote connections and innovation.”

The 5G testbed will be based at Cambridge Science Park, owned by Cambridge University, which is currently home to more than 120 tech companies and scale-ups.

Additional partnership with TusPark UK has been developed to accelerate the digitalisation of The Cambridge Science Park and enable businesses to exploit new capabilities, boost innovation and gain competitive advantage as they shift towards the adoption of 5G.

“We are looking for organizations that would like to create, accelerate and test out new and innovative applications and products on the CW 5G Testbed,” said CW Chief Commercial Officer Abhi Naha.

The 5G Testbed will be launched in January 2021. To find out more and how to get involved, please contact

 

Abhi Naha

CCO CW (Cambridge Wireless)

Tel: +44(0)1223 967 101 | Mob: +44(0)773 886 2501

[email protected]

 

- Ends -

About CW (Cambridge Wireless)

 

CW is the leading international community for companies involved in the research, development and application of wireless and mobile, internet, semiconductor, hardware and software technologies.

With an active community of over 1000 technology companies ranging from major network operators and device manufacturers to innovative start-ups and universities, CW stimulates debate and collaboration, harnesses and shares knowledge, and helps to build connections between academia and industry.

www.cambridgewireless.co.uk

 

About Huawei

Founded in 1987, Huawei is a leading global provider of information and communications technology (ICT) infrastructure and smart devices. We are committed to bringing digital to every person, home and organization for a fully connected, intelligent world. Huawei's end-to-end portfolio of products, solutions and services are both competitive and secure. Through open collaboration with ecosystem partners, we create lasting value for our customers, working to empower people, enrich home life, and inspire innovation in organizations of all shapes and sizes. At Huawei, innovation puts the customer first. We invest heavily in fundamental research, concentrating on technological breakthroughs that drive the world forward. We have nearly 194,000 employees, and we operate in more than 170 countries and regions, serving more than three billion people around the world. Founded in 1987, Huawei is a private company fully owned by its employees.

For more information, please visit Huawei online at www.huawei.com

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Huawei supports open innovation to speed up tech development thus delivering high quality tech products into the marketplace

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Huawei Public Affairs Director Dave Harmon yesterday (18 November) addresed an EU-China research and innovation forum that was hosted by Ivo Hristov MEP and which was supported by STOA, the College of Europe and EU40.

Other speakers that addressed this forum included European Research Council President Jean-Pierre Bourguignon, Davide Cucino, the president Emeritus at the EU Chamber of Commerce in China and and Dr. Bernhard Muller who is a senior professor at the Technical University of Dresden.

Dave Harmon is director for EU Public Affairs at Huawei Technologies and he is a former member in the cabinet of the EU Commissioner for research innovation and science 2010-2014.  

Dave Harmon is director for EU Public Affairs at Huawei Technologies and he is a former member in the cabinet of the EU Commissioner for research innovation and science 2010-2014.

Dave Harmon said: “Huawei as a company supports open innovation and actions that back open scientific activities in Europe and across the length and breadth of the world. Programmes such as Horizon 2020 and Horizon Europe are open by nature. This is the right political approach. This is because it will ensure that the best scientists across the world can and will work together in common cause to translate scientific effort into solutions for society. Science initiatives that are open will speed up the process of innovation. We are living through a digital transformation. ICT solutions are now modernizing different economic sectors across society and in a very speedy manner.

"The EU and China work on many common research initiatives including within the areas of urbanisation, agriculture, transport, aviation and health and the ICT sector underpins much of the collaborative actions within these policy spheres. This approach is enshrined within the framework agreements that the EU has with China that cover the science and technology sectors. Moreover, the EU Joint Research Centre has an MOU with the Chinese Academy of Sciences to work together on scientific advancement covering the transport, environment and agriculture sectors. The EU and China also has an innovation dialogue in place that is promoting higher levels of co-operation between the public and private sectors within the innovation policy space.

"China is now spending 2.5% GDP on research and development activities. This is ensuring that Chinese scientists can support global research measures that are successfully tackling the grand challenges that society faces today. Programmes such the EU-China mechanism for research and innovation that is administered by the Chinese ministry of science and Technology are ensuring higher levels of involvement from EU scientists in Chinese led research schemes. The European Commission sponsored Enrich initiative is also promoting higher levels of collaborative engagement between EU and Chinese researchers and business innovators alike.

"Huawei is an EU company. Huawei is deeply embedded within the ICT research eco-system. The company set up our first research centre in Sweden in the year 2000. Huawei has 230 technology partnerships with EU research institutes and collaborative arrangements with over 150 universities in Europe.

"Europe has great expertise and capabilities within the software engineering arena. Huawei, as a company ranks 5th in the 2019 European Commission Industrial Scoreboard for [email protected] Huawei has been an active participant in both FP7 and in Horizon 2020.

"Huawei is in a strong position to implement the policy goals of the European Union. International collaboration is a vital component within the research strategic space so as to ensure that EU policy objectives are fully implemented. Huawei wants to actively enable EU research and innovation actions under Horizon Europe and in particular in areas that will focus on the development of smart networks and services and the key digital technologies of the future.

"Moreover, there must be a stronger emphasis on green and environmental research at the basic and applied levels of scientific engagement. This will ensure that climate action targets will be reached and that the UN Sustainable Development Goals will be fully implemented.”

Dave Harmon is director for EU Public Affairs at Huawei Technologies and he is a former member in the cabinet of the EU Commissioner for research innovation and science 2010-2014.  

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UK should revisit 5G ban now Trump is defeated, says Huawei

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The UK should revisit its decision to ban the Chinese telecoms equipment maker Huawei from its 5G network in the post-Trump era and recognize that it will worsen England’s north-south divide, the vice-president of Huawei has said. Victor Zhang’s intervention comes as Boris Johnson prepares on Monday to meet the Northern Research Group, the lobby group of Conservative MPs determined to turn the prime minister’s levelling up agenda into a reality, writes Patrick Wintour.

Zhang urged the UK to stay true to its roots as the birthplace of the first Industrial Revolution, saying the government could not afford to fall behind in the 5G revolution. In July the UK government, after pressure from the Trump administration, reversed a plan to let Huawei be a controlled 5G supplier, and instead ordered Huawei equipment be stripped out of the country’s 5G networks by 2027. Ministers at the time said the reversal was not caused by a new security services analysis of the security threat posed by Huawei, but by the Trump administration’s decision to block US conductors being used by Huawei.

Zhang said: “The decision is going to have a huge economic impact on the UK. The UK wants to see a balance of investment between London, the south-east, the Midlands and the north of England. World-class connectivity is crucial to this objective, and without that it is very difficult to close the gap in the economic imbalance in the UK.” Victor Zhang Huawei’s vice-president, Victor Zhang, giving evidence to the science and technology select committee in July.

He added: “The government itself has said it will lead to a three-year delay in the rollout of 5G, and this will have a huge economic impact. Many people are surprised by the scale of the impact of this delay. Third-party research by Assembly, an independent research firm, shows this delay will have an £18.2bn impact. “The research shows it will widen the north-south digital divide. In the north, the broadband carriage and speeds are already far behind London and the south-east. The delay in developing 5G will worsen the situation. The government is committed to superfast broadband by 2025, and with this decision the objective of levelling up becomes unachievable.”

If 5G were delivered nationwide without delay, three-quarters of its expected economic benefit would be likely to come in regions outside London and the south-east. Urging ministers to revisit the decision, Zhang said: “I hope the government will keep an open mind and, once they review the economic consequences, look to see if there is a better way forward.” He added: “As a global company we want to work with governments to ensure they have the policies to secure growth. The decision was a political one motivated by US perceptions of Huawei and not those of the UK. This is not really motivated by security, but about a trade war between the US and China.”

He said he hoped the new US administration would adopt a different approach to that of Donald Trump. Zhang also expressed fears that the UK’s traditional role as an open, free trading nation was under challenge, and rejected claims that his company represented the “dragon in the nest”, a phrase used by the chair of the foreign affairs select committee, Tom Tugendhat. He said: “Something is worrying me about the UK because discussions here are focused on the geopolitical conflict rather than how to improve the UK economy and make sure the country grabs the opportunity again to be a global leader post-Brexit, at the end of this year. All this is vital for the UK’s recovery post-Covid and after Brexit – trade, technology, digitalization and how to attract foreign investment to the UK.

“The UK was the birthplace of the first Industrial Revolution and it was going to lead the digital revolution. The UK has the DNA to develop the right policies to seize leadership in innovation.”

Critics of Huawei claim that despite the independent shareholder structure, the company can be directed at any minute by the Chinese Communist party to give its regime a backdoor to spy on British communications. Zhang pointed out: “GCHQ concluded the technical risks were manageable and so did two parliamentary select committees. Personally, I don’t think there is a security reason for the UK to stop using Huawei. America put pressure on the UK through sanctions on Huawei, and the UK – impacted by these new, unjustified sanctions – responded.”

In August Washington announced that companies would have to obtain a licence before selling Huawei any microchip that has been made using US software or equipment. Zhang argued for the importance of 5G, saying it was a massive step up from 4G in terms of capacity, speed and volume. “This makes it essentially the foundation for next-generation technology – AI/robotics/smart healthcare and education … The fast speed and near-instant latency mean tech can talk in almost real time … Those who come earlier to this will have considerable advantages over those who come later.”

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