Motivations for such currencies are many, but the key one is to maintain control of the national and global finance. Another worry is that the use of unregulated digital currencies like Bitcoin could enable serious domestic and international crimes. It could also make tax evasion easier and hurt governments' ability to support public expenditure on education, healthcare, physical infrastructure, public safety, national defense and other priorities.
The People’s Bank of China, the Chinese Central Bank, is testing its e-yuan digital currency in Shanghai, Chengdu and other major cities. It has filed more than 100 patent applications for its digital currency. Reports indicate that the experiments are going smoothly, and soon people will have the option of downloading a government-issued digital wallet. Unlike commercial payment processors such as WeChat Pay and Alipay, the official Chinese version will be equivalent to an account at the central bank with the same guarantee as hard cash, according to The Economist
magazine. China is far ahead of of the rest of the world, including the United States in the development of a central bank-backed digital currency (CBDC). This could put it far ahead in the future of global payments and financial settlement. It could eventually displace the dollar and provide China with the immense global financial power that the US currently enjoys.
China has set up a partnership with SWIFT
, the Society for Worldwide Interbank Financial Telecommunications, that manages the global system for cross-border payments, through its digital currency research institute and clearing center. SWIFT is a major vehicle for the United States to enforce its unilateral sanctions on countries like Iran, North Korea and Venezuela. China offers CIPS, cross-border interbank payment system, as an alternative to SWIFT. CIPS has only about 80 member banks worldwide compared to over 11,000 banks using SWIFT.
US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have confirmed last week that they are working on digital dollar as a high-priority project.
US Treasury Secretary Janel Yellen has been quoted by the media as saying: “I gather that people at the Federal Reserve Bank of Boston are working with researchers at MIT to study the properties of it. We do have a problem with financial inclusion. Too many Americans really don’t have access to easy payment systems and bank accounts. This is something that a digital dollar, a central bank digital currency, could help with. I think it could result in faster, safer and cheaper payments.”
A top official of the State Bank of Pakistan, the nation's central bank, announced in April 2019 that the institution aims to issue a digital currency
(Central Bank Digital Currency or CBDC) by 2025, according to media reports. Speaking at the launch of regulations of Electronic Money Institutions (EMIs), central bank officials said that EMIs will be non-bank entities to be licensed by the central bank to issue e-money for the purpose of digital payments. Pakistan's finance minister Asad Umar and the central bankers said they are targeting Pakistan's economy to go fully digital by 2030.
More recently, the State Bank of Pakistan launched Raast, a digital payment system
. It is essentially a pipe that is intended to connect government and financial institutions with consumers and merchants with each other to process payments instantly at very low cost. Raast will be boosted by Pakistan government's decision to use it to pay salaries, pensions and pay welfare recipients under Benazir Income Support and Ehsaas Emergency Cash programs.
Raast digital payment infrastructure represents a great leap forward for the use of financial technology (FinTech
) and financial inclusion in the country. It will also promote e-commerce
in Pakistan. Undocumented economy poses a serious threat to the country because it creates opportunities for criminal activities and tax evasion. Raast is part of the government's effort to modernize payment systems and document the nation's cash-based informal economy.
America's Global Financial Power:
There's a common perception that the United State is abusing its extraordinary financial power to arbitrarily punish countries through its unilateral financial sanctions. This power stems mainly from the fact that the US dollar is the main international reserve and trade currency. It allows US to control multi-lateral financial institutions like SWIFT, World Bank, IMF and FATF. Many countries, including major US allies in Europe, are now looking to find alternatives to SWIFT. This has been specially true since former US President Donald Trump existed the JCPOA (Joint Comprehensive Plan of Action) agreed among the 5 permanent members of the UN Security Council (P5) plus Germany. Here's an excerpt of a recent New York op ed
by Peter Beinart:
"By deluding themselves about the extent of America’s might, they are depleting it. A key source of America’s power is the dollar, which serves as the reserve currency for much of the globe. It’s because so many foreign banks and businesses conduct their international transactions in dollars that America’s secondary sanctions scare them so much. But the more Washington wields the dollar to bully non-Americans into participating in our sieges, the greater their incentive to find an alternative to the dollar. The search for a substitute is already accelerating. And the fewer dollars non-Americans want, the harder Americans will find it to keep living beyond their means."
Central Bank Digital Currencies (CDBDs) are gaining momentum with the talk of digital yuan and digital dollar. Motivations for such currencies are many, but the key one is to maintain control of the national and global trade and financial systems. If successful, these new currencies and associated payment systems could challenge the global financial power of the United States and fundamentally transform banking as we know it.