Since 2009, when bitcoin appeared, many cryptocurrencies have arisen, first launched by startups (like Ethereum), but more recently by long-standing players like Facebook, Diem The partnership aspires to create a new global digital ecosystem. The People’s Bank of China will likely be the pioneer in the launch of digital fiat currency, potentially ushering in a new era in the digital economy. (For more on China’s efforts, see The Business Meaning of China’s Digital Yuan.)
For CEOs and their top teams around the world, the rapid changes in the virtual currency landscape will raise questions about their willingness to operate and seize opportunities in the new environment. Eg:
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Have we thought twice about the impact on the supply chain as more transactions in some regions are denominated in digital currency?
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What are the implications for our financial and monetary operations as adoption increases and new digital currency infrastructure develops?
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How can we better serve our customers by minimizing collisions in crypto transactions?
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How are we getting up to speed with the new regulatory frameworks that the money, securities and tax authorities are starting to build?
If you’re not struggling with questions like these now, it’s time to start.
Dynamic Digital
China’s boldness is not surprising given its status as a quasi-cashless society and its growth as a digital society. In 2000, China had about 23 million internet users; today, that number has grown to more than 900 million, essentially all using technology with just one cell phone. The impetus for that progress is the size and spread of the population along with the cost of building a comparable “physical” communications infrastructure.
One consequence has been the emergence of China’s hugely successful online and offline e-commerce platforms. From these platforms, two pioneering digital payment systems have merged – Alipay and Tenpay, with its WeChat Pay service – enabling near-frictionless shopping and increasing popularity. , which includes everyday transactions like accessing public transport.
There are several other strong parallel trends that will continue to drive demand for digital payments and digital currency in general. Businesses around the world continue to digitize, and the post-COVID world will lead to even more commercial transactions being processed on social platforms. We see this in KPI data reported by US and Chinese platform companies. Whereas before the focus was Monthly Active users, growing attention daily commercial transactions. The move to increase the conduct of commerce on these platforms is driving demand for digital payments, leading to growth in the number of digital payment companies. The digitization of commerce and payment transactions also creates opportunities for digital currencies, with the potential to speed up their transactions; enabling lower cost, more affordable monetary avenues; and record transaction information instantly.
Gearing
Market dynamics have prompted monetary regulators worldwide to begin exploring digital currencies, which are currently being researched or piloted by more than 85% of central banks.first In October 2020, Bank for International Settlements (BIS) release a report collaborated with seven major central banks — among them, the European Central Bank, the Bank of England, the US Federal Reserve, and the Bank of Japan — to assess the viability of digital currencies of the central bank (CBDC). The report focuses on the principles of how digital currencies will coexist with cash and other types of payments, what will be required so that adoption will not harm financial stability, and which features will enhance innovation and financial performance. Some smaller countries, such as Switzerland and Thailandare holding their own digital currency trials and Bahamas recently launched its first national CBDC.
Continued advances in China could accelerate these efforts. In 2020, there were several million DCEP transactions, totaling hundreds of millions of dollars; and by an estimate, The digital yuan could account for 15% of all China’s electronic payments in the next 10 years. China’s tests have run into thousands of businesses and also directly engage consumers — through, for example, distribution based on January 2021’s lottery. 100,000 won digital currency “red envelope”, each envelope is worth 200 RMB, for holiday gifts.
And the business case for digital currency implementation is strengthening. Facebook’s Diem reflects the aspirations of the platform’s players. Elsewhere, opportunities to trade virtual currencies (mostly cryptocurrencies) are growing with support from financial institutionsand investors are becoming more comfortable with holding crypto portfolios.
As the world becomes increasingly digital and commercial transactions move more heavily to digital platforms, the potential for DCEPs will increase. Today, China’s currency accounts for about 4% of global transactions. DCEP could further lubricate domestic and, over time, global trade for Chinese companies. It can also provide protections against fraudulent transactions. Widespread absorption could enhance the renminbi’s position in world currency markets against the dollar and euro.
Looking ahead: The landscape is evolving
The momentum for virtual currencies is building on different sectors — cryptocurrencies and private digital currencies, as well as DCEP. Here’s the executive’s quick scan of what’s developing in the crypto and China sector:
Regulation is one factor driving the expansion of the crypto environment. Regulators and money regulators are continuing to provide clarity in this area. Hong Kong, for example, is discover a framework to exchange cryptocurrencies. In the United States, the Office of the Comptroller of the Currency has green light for federal charter banks and savings banks for verified transactions in digital “stablecoins”. As financial centers and major economies move forward with digital asset rules, it will pave the way for industry growth and innovation,2 while providing comfort to traditional financial institutions considering ways to enter the arena.
Banks and other financial institutions may be on the front lines of change. Adapting to crypto will require a rewinding system, along with funding compliance and upfront operational costs. Some banks are calculating that by creating revenue-generating units around virtual currency operations. Grasping the regulatory dynamics, both are building crypto trading platforms and launching property management services, custodial activitiesand currency advisory and research groups. As Our colleagues took note, more integration between the software and applications that power fintech services and mainstream banking operations will be needed. Cryptocurrencies filled with transactional information will open the door to a wide range of innovative financial services — as well as growing investor demand for them.
Cryptocurrency trading is poised to surge. The best digital transactions are very intuitive, just a swipe of a finger or a touch of a mobile phone. Successful paying players in China, where mobile payments far beyond those in other countries, have been active participants in these dynamics. As the use of virtual currencies grows and China’s DCEP effort progresses, pressure will increase on companies – financial and non-financial – to offer a variety of digital payment options. more digital and a better experience for their customers. To achieve that goal, Facebook’s Diem aims to make money around the world as easy as sending a text messagewhile helping to reduce remittance fees and money transfers which are often very expensive.
Advances in the B2C sector will pave the way for domestic and cross-border company-to-company transactions. China’s banking system will likely be the first driver in capacity provision extensive B2B payments. Seller-to-seller transactions may have gone mainstream: data shows growth in digital B2B commerce between Latin American buyers and exporters from Asia. Increased security, lower costs, easy tracking of payments, and trading partnerships enabled by digital currencies will increase their appeal to global companies looking to improve efficiency. supply chain productivity.
Leaders need to become more comfortable in new terrain. Now is the time to start laying the groundwork for how companies move into the digital currency era. Some corporate treasurers soon made moves in response to changing dynamics. Companies ranging from tech players like MicroStrategy for the insurance company MassMutual are increasing their crypto holdings — seeing the potential to increase portfolio value, to hedge against inflation, or crypto options to aid consumer purchases. Transaction infrastructure is maturing rapidly, fueled by regulatory actions. Exchange for futures trading and derivatives Cryptocurrencies are multiplying, with investment funds provide extra liquidity. Innovative means of investing in cryptocurrencies and new financial strategies may, over time, arise from these developments. While, M&A activity among crypto players is accelerating. As privately held digital currency services and existing cryptocurrencies (and their ecosystems) gain ground, players are recruiting talent with extensive service knowledge. financial services. Enhance crypto-monitoring and understanding by regulatory authorities and tax authoritieswill eventually create a more solid market space.
Ultimately, it seems likely that the operations of many companies in China will soon operate in an environment where a larger number of transactions will be denominated in the new digital currency — and compete with other companies. Chinese companies are applying such transactions. Leaders should keep a close eye on the development of Chinese pilots, changes in China’s regulatory regime and the pace of company adoption. Over time, the web of individual transactions through DCEP could develop more B2B usage with broader operational implications.
There is still a long way to go, but the direction seems clear. 2021 will be the year that China becomes a laboratory for the mass adoption of digital currencies. Then 2022 could mark the global launch of its progress, at Winter Olympics in BeijingAccording to the report, global athletes and event attendees will use the Digital Yuan. As Olympic athletes go in search of gold, the potential of a much larger global economic prize may be fully displayed for the first time.
