The world’s four largest banks are backing a central bank digital currency (CBDC) that threatens the US dollar. This CBDC is the Digital Yuan (ECNY) from the People’s Bank of China (PBOC).
They call the Digital Yuan the “world’s first cryptocurrency backed by Local Chinese bank reserves.” If this is true, the eCNY has enormous value.
To explain, the official ECNY website lists the “Local Chinese Banks” as the Industrial and Commercial Bank of China Limited (ICBC), China Construction Bank (CCB), Agricultural Bank of China, the Bank of Communications, and Bank of China. This includes the four largest banks in the world.
China’s Big Four Banks Back Digital Yuan CBDC with $22.29 trillion in assets
The Big Four are:
1. The Industrial & Commercial Bank of China Ltd with $5.47 trillion in assets.
2. The China Construction Bank Corporation with $5.02 trillion in assets.
3. The Agricultural Bank of China with $4.92 trillion in assets.
4. The Bank of China with $4.19 trillion in assets.*
Moreover, the Bank of Communications is the world’s seventh largest bank with $2.69 trillion in assets, CEOWorld Magazine estimates. Hence, banks with $22.29 trillion in assets are backing the ECNY. Additionally, the Central Bank for the world’s second-largest economy, the People’s Republic of Economy issues the eCNY.
Thus, there is enormous financial power behind the eCNY. I think this will endear eCNY to speculators.
Will Digital Yuan Replace the US Dollar and Tether (USDT)?
Frighteningly, its website boasts: “Digital Yuan (ECNY) will replace the dollar and USDT (Tether), including all other stable coins; however, the eCNY will not be a stablecoin.” I think the banks’ assets makes this boast realistic.
Additionally, the banks are courting foreign speculators. For example, they claim the PBOC built the eCNY for across the border wealth transfer.
Plus, they built the Digital Yuan eCNY platform on Binance Smart Chain. The Binance Smart Chain is associated with the world’s largest cryptocurrency exchange Binance. Binance had an $8.205 billion 24-Hour Trading Volume on 4 July 2023, CoinMarketCap estimates. Moreover, Binance had 11.946 million weekly visits and served 1,174 markets.
In contrast, CoinBase (COIN), the second largest cryptocurrency exchange, had a $910 million 24-Hour Trading Volume, 20,328 weekly visits, and 530 markets on 4 July 2023.
Thus, eCNY could work with the world’s largest cryptocurrency exchange. However, Binance’s exchange does not support the Yuan or renimbi, China’s fiat currency. I suspect eCNY is an effort to sneak the Yuan into Binance.
Cynics will say China’s big four monster banks could use eCNY to takeover Binance and dominate the cryptocurrency markets.
What Value do the Yuan and eCNY offer?
The Yuan’s value is puny in comparison with the US dollar. For example,a yuan was worth 14₵ ($0.14) in USD on 4 July 2023. In contrast, a US Dollar was worth ¥7.2144 on 4 July 2023.
The US dollar is worth far more than the yuan because it is the world’s reserve currency. To explain, the reserve currency is the fiat currency financial institutions and corporations use for cross-border trade. Fiat currency status makes nations superpowers. For example, the sun set on the British Empire when the Pound Sterling lost its reserve currency status during World War II.
Official Chinese policy is to make the yuan the global reserve currency in the 21st century. I think eCNY is part of the reserve push. For example, the eCNY website gives Digital Yuan’s Location as:
“Digital Yuan eCNY, Incorporated with digital yuan and blockchain banking firms. Xicheng District, Beijing.” Hence, they base eCNY in the historic capital of the Chinese Empire. Notably, the website states “Government Contractors China.”
Interestingly, Beijing is one of the world’s 15 largest financial centers, according to Statista. Beijing is 13th, behind Washington, DC, (11), but ahead of such historic European financial centers as Hamburg and Paris. Hence, Chinese political and financial power are coming together that could be good for speculators but bad for America.
Can the Yuan Replace the Dollar?
However, the yuan and Digital Yuan are far from knocking off the dollar. eCNY admits the Digital Yuan Coin Price on Binance Smart Chain was 16₵ on 4 July 2023.*
Yet Yuan is growing fast. For example, the Central Bank of Argentina now allows customers to deposit Yuan in Argentine banks, Business Insider reports. Moreover, Chinese companies and investment banks can now issue stocks and other securities in yuan.* Hence, the eCNY could legally trade as a “security” on Argentine exchanges.
Importantly, Argentine Yuan transactions doubled to $285 million (¥2.056 billion) in the first 10 days of June 2023, Business Insider estimates. Plus over executives at over 500 Argentine companies are considering paying for Chines products with yuan. Hence, there could be a market for eCNY in Argentina now.
Plus, the Central Bank of Argentina made a ¥19.48 billion ($2.7 billion) payment to the International Money Fund (IMF), The Business Aires Times reports. Hence, a US sponsored international financial agency based in Washington, DC, (the IMF) accepts yuan payments.
A desperate Central Bank of Argentina turned to the yuan because of a drastic shortage of US dollars in the South American country. Argentines use foreign currencies because their Peso has lost almost 80% of its value since 2020.
Argentine yuan use could have enormous consequences because Argentina is a large food exporter. Argentia exported $8.8433 billion worth of products in July 2022. However, that figure fell to $6.203 billion because of a drought.
Moreover, Argentina has mineral riches including 21% of the world’s lithium reserves, Time reports. Lithium is valuable because it is a key component of batteries for electric vehicles and electric grid powerpacks. Hence, lithium is a key material for the post-fossil fuel age.
Yuan Use Grows
Yuan use is growing far beyond Argentina. For example, Indian companies are paying for Russian oil in yuan.
The Indian companies are using yuan because sanctions prevent Russian companies from accepting payment in dollars and euros. For example, the Indian Oil Corp has made yuan payments to Rosneft, Reuters claims.*
Russian oil and coal are cheap because the Ukraine War shuts those resources out of European markets. Consequently, Indian companies are buying more Russian oil. Russian oil exports to India grew by 15% between April 2022 and May 2023, The Wire estimates. Russian crude now comprises 42% of Indian oil imports.*
Plus, the yuan has replaced the dollar as the most traded foreign currency in Russia, Bloomberg reports.* For example, “All seaborne Russian oil sales to China are now settled in renminbi since the price cap, sidelining the last small number of banks that were handling US dollars,” one executive told Reuters, referring to the yuan by its official name.”*
The yuan surpassed the dollar as China’s most-used currency for cross-border transactions in March 2023.* Reuters estimates yuan accounted for 48.4% of Chinese cross-border transactions, while dollars comprised 46.7%.*
Hence, the yuan is now a major trading instrument. I think that could create a large international trading market for eCNY.
Digital Yuan could enter a $2.684 trillion market
Consumer and institutional use of the Digital Yuan (ECNY) is growing in China.
Importantly, the Shanghai Clearing House is supporting eCNY clearing and settlement services for bulk commodities. This is important because China is the world’s largest market for many commodities. Hence, a Chinese electric vehicle maker could pay for Argentine lithium with Digital Yuan.
The Shanghai Clearing House is a financial services clearing counterparty. Such a counterparty facilities trading between financial markets. For example, trades between the derivatives and equities markets or the currency and commodities markets. Interestingly, the Shanghai Clearing House operates under the PBOC.*
The Shanghai Clearing House could give eCNY use an enormous boost because China’s commodities market is the second largest. For example, China imported 12.48% of the world’s commodities worth $2.684 trillion in 2021, TrendEconomy estimates. Hence, eCNY could enter a $2.684 trillion market.
Even if just 1% of Chinese commodities trades use eCNY. That could be a $2.684 billion market.
eCNY Consumer use grows
Consumer use of Digital Yuan (eCNY) is growing. For example, the public transit system in Jinan in Shandong Province is accepting eCNY payments on all city bus routes.* To explain, they have upgraded all card readers on buses to accept eCNY payments.
Meanwhile, the city government in Changshu in Jiangsu Provice is paying civil servants in eCNY. Employees can even exchange Digital Yuan for Paper Yuan through self-service terminals, CryptoNode reports.*
In Hong Kong, the government is subsidizing a 20% discount on eCNY purchases at 1,400 businesses. However, only 625 Hong Kong residents have registered for a digital yuan wallet.
Chinese City governments gave ¥180 million ($26.5 million) worth of eCNY during the Lunar New Year in February 2023. Thus, the PBOC is so dedicated to eCNY it gives it away.
What Value does eCNY Offer?
I don’t think the Digital Yuan (ECNY) will replace the US dollar soon. However, I think an enormous market for eCNY could develop fast. All speculators need to investigate eCNY because it could become the biggest thing in crypto.
In particular, eCNY could destroy stablecoins such as Tether (USDT) because it is an actual fiat currency. To explain, Tether is a cryptocurrency that contains a mechanism that makes payments in US dollars held in a trust account.
Conversely, eCNY is actual yuan. Therefore, the Digital Yuan has an enormous advantage over Tether. I predict most people will accept Digital Yuan over Tether.
However, I think a Digital Dollar issued by the US Federal Reserve could kill demand for Digital Yuan fast. Nobody will want Digital Yuan if there’s a Digital Dollar backed by the Fed. Unfortunately, current US politics make it impossible for the Fed to issue a Digital Dollar.
Thus, China could win the digital currency wars because of American ignorance.
*https://medium.datadriveninvestor.com/chinas-incredible-financial-power-966c8c3932a2
*https://ceoworld.biz/2023/04/02/biggest-banks-in-the-world-as-measured-by-total-assets-2023/
*https://time.com/6200372/lithium-mining-technology-argentina-gold/
*https://thewire.in/trade/indian-refiners-start-paying-for-oil-imports-in-yuan-report
*https://www.bloomberg.com/news/articles/2023-04-03/china-s-yuan-replaces-dollar-as-most-traded-currency-in-russia#xj4y7vzkg
*https://www.businessinsider.com/bank-of-china-halts-cny-transfers-russia-us-eu-uk-2023-6
*https://www.businessinsider.com/dedollariztion-china-yuan-russia-oil-imports-sanctions-2023-5
*https://www.globaltimes.cn/page/202306/1293131.shtml
*https://finance.yahoo.com/news/shanghai-clearing-house-launches-digital-062951952.html
*https://www.sofi.com/learn/content/central-counterparty/
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