Discover more from Cashless: Central Bank Digital Currency and China in Perspective
Cross-Border Mobile Payments; Digital Rupee is GDP Jet Fuel; Deposit tokens: Want one from SVB?; Digital Dollar is a "Dead Man Walking"
De-Dollarization: Ditching the US Dollar?
1. Cross-Border Mobile Payments
2. Digital Rupee is GDP Jet Fuel
3. Deposit Tokens: Do you want one from Credit Suisse or SVB?
4. Digital Dollar: Dead Man Walking
5. De-dollarization: Ditching the Dollar?
Amongst Henri Matisse’s most famous works, Dance (1909) is an ode to life, joy, physical abandonment and has become an emblem of modern art.
It fits today’s newsletter because the dance of finance continues with nations dancing around whether or not to issue a CBDC, consider deposit tokens, or ditch the dollar. All part of a dance, just on a larger scale!
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1. Cross-Border Mobile Payments
Cross-border MOBILE payments are one step closer with the BIS's Project Nexus
We all want to live the dream of simply sending money from one mobile phone to another in a foreign country, right? The BIS's Project Nexus just took a big step in getting us there with a prototype that connected the Eurosystem Target (TIPS) to Malaysia’s RPP network and Singapore’s FAST network!
Project Nexus shows that there’s more than one way to make a payment, and while I love CBDC, I’d be delighted to use a mobile network to accomplish smaller cross-border transfers! I don’t care how I make the payment, just that when I do, it’s fast and inexpensive.
Project Nexus’s magic trick is to connect existing ISO 20022 instant payment systems, so this is far less revolutionary than a CBDC but equally effective for small amounts. In fact, these connections are already at work between Singapore, Thailand, and India!
Nexus wants to go global! “In the next phase of Nexus, the BISIH Singapore Centre will collaborate with the ASEAN central banks and their payment system operators as they prepare to connect their domestic payment systems, using the Nexus blueprint as the foundation. The ASEAN central banks share a desire for any real-world implementation of Nexus to be global rather than regional."
Usage is straightforward, and the sender sees all fees along the chain, including the receiver's final amount. While QR codes aren’t mentioned in the documentation, there is always hope!
So I love it, and everyone in ASEAN and EU should too!
Now for the problem.
Fees are charged by the sender and recipient’s payment provider, who also will also be responsible for foreign exchange. So whoever does your mobile payment will control the fee structure and the same for the recipient.
What is unclear to me is whether a system with two different payment providers can beat the fees of someone like Alipay+ with a tighter handle on controlling fees on either side of the transactions.
I can imagine a scenario where the sender’s fees are low, but the receiver's are high on certain payment corridors because of different fee structures.
Details aside, these systems will likely be a godsend for remittances and other SMALLER payments.
—I love Project Nexus and hope that all of ASEAN and EU are interconnected within the next 5-7 years
—Fees are the question; I am optimistic but expect them to vary.
—Whether this can beat an integrated player like Alipay+ remains to be seen.
—Once again, the BIS is helping build our future!
2. Digital Rupee is GDP Jet Fuel
India’s Digital Rupee is GDP jet fuel going far beyond UPI and points to a BRICS future without SWIFT.
India is famed for its fantastic UPI Real Time Gross Settlement (RTGS) system, and -STILL- it is building a CBDC, the digital rupee or E-Rupee!
It’s not hard to understand why! “Digital payments helped unlock US$16.4 billion of economic output, which represents 0.56% of the country's GDP.”
India, like China, has advanced digital payments, and both got a tremendous boost to GDP from these existing payment systems. So having already seen the benefits, why wouldn’t India or China (1% GDP lift ) want even more of a good thing?
CBDCs aren't a superfluous extra; they are economic jet fuel!
🔹 UPI vs. CBDC
Not a day goes by when someone doesn’t equate RTGS systems like UPI with CBDC. Usually, they say that with UPI, India doesn’t need a CBDC. Yes, both make instant payments, but that’s where the similarity ends.
EY lists five primary benefits for the E-Rupee CBDC. They are: Programmability, Cross-Border Transactions, Financial Inclusion, Settlement of Securities and Disaster and MSME funding.
UPI cannot provide most of these CBDC benefits! It is true that UPI can handle limited-value cross-border transactions, like those between India and Singapore. As for financial inclusion, yes, UPI helps, but it isn't reaching everyone because it cant make offline transfers!
So when you hear someone say: “UPI, WeChat, Alipay, or FedNow is enough. We don't need a CBDC." Tell them they’re wrong! CBDCs do far more than just make payments.
🔹 International payments
EY does a fine job of outlining the benefits of cross-border CBDC payments focusing on Cost, Transparency, Speed, and Access. All are benefits that we’ve discussed in depth.
What EY wouldn’t dare discuss is that Brazil, Russia, India, China, and South Africa are all building CBDCs. All BRICS nations will have CBDCs within the next two years!
India is buying oil from Russia in rubles on dedicated bank systems that do not interact with SWIFT. CBDCs will inevitably be used for this trade, given the state of sanctions.
BRICS nations have been vocal in the desire to de-dollarize, and CBDC is likely to be one of the tools they will use to achieve this.
—India’s digital rupee is a model CBDC program and GDP jet fuel.
—Even with UPI, India still wants a CBDC because it offers greater benefits.
—Offline CBDC use will be critical for rural populations and take inclusion far beyond UPI.
—BRICS nations will all have CBDCs in two years, watch as non-SWIFT transfers become a reality.
3. Deposit Tokens: Do you want one from Credit Suisse?
Bank deposit token or CBDC? The Swiss Bankers Assoc. proposes deposit tokens at the exact time when banks are failing!
Answer this honestly!
At a time when banks are failing, including Credit Suisse, which do you want in your digital wallet, a CBDC or a deposit token?
The SBA White Paper on deposit tokens is a great read and a solution I fully support for Switzerland, but it's no substitute for a CBDC.
I studied engineering and am all about solving a problem; if deposit tokens can make payments free and instant for the Swiss, I’m all for them.
I'm more interested in getting the job done than finding the “optimal solution.” Deposit tokens do just that; they get the job of digital payments done but are too far away from optimal.
It’s not a surprise that the SBA is pro-deposit tokens because they keep banks in control of payments. As we're seeing right now, they also introduce credit risk that CBDCs don't have.
Switzerland isn’t sub-Saharan Africa, but deposit tokens also do nothing for financial inclusion. In Switzerland, where most are banked, that may mean little, but in much of the world, that is a significant problem.
The greatest gift that tokenized money can give us is disintermediation. Deposit tokens do not disintermediate banks, and that's the fundamental problem.
A central bank guarantee, inclusion, disintermediation, and not giving banks -complete- control over payments are the reasons I prefer CBDCs over deposit tokens.
That said, I fully acknowledge that deposit tokens and CBDCs are significant improvements and perform many of the same functions.
The SBA wants a "joint token" created in a special-purpose vehicle (SPV) co-owned by the participating commercial banks. The SPV issues a single deposit token (DT) that is "fully or partially" backed by secure and highly liquid reserves.
If FULLY reserved, not partially, the Swiss gov't should give this proposal serious consideration. However, they'd be better off with a CBDC.
The proposal also uses programmability and blockchain. Using DLT and open-source, transparent smart contracts to build “composable” new structures, as crypto does today, is appealing!
To the SBA’s credit, they do build interest rates into deposit tokens, which are not common with CBDCs. They also throw out this line which might resolve some of my issues with disintermediation:
“Clients should be able to store the DT in their own wallet or use custody services offered by banks and other providers.”
If SBA is willing to open deposit tokens access to “other providers” like telecom and convenience stores, it would be a big step forward.
—Deposit tokens have a role to play in our digital payment future but are no CBDC replacement.
—The failure of Credit Suisse and US banks shows that the “risk free” nature of CBDC shouldn’t be taken for granted.
—Switzerland may be a perfect place for deposit tokens, but that doesn’t rule out a CBDC. It isn’t a question of CBDC or deposit tokens, one or the other, but both.
4. Digital Dollar: Dead Man Walking
The US’s digital dollar CBDC program is now a “dead man walking” as it becomes the latest victim of the election cycle, culture war, and extremist media.
Anyone following CBDC knew that a US digital dollar was a long shot. From the start, the Fed showed no interest and opined that a CBDC was a “solution looking for a problem.” Somehow the Fed didn’t take note that 2.3% of the US’s GDP is spent on payment fees or that 19.6% of the US population is underbanked or unbanked.
Read my long-form article here
5. Ditching the Dollar?
DE-DOLLARIZATION: DITCHING THE DOLLAR on “The Geopolitics in Conflict Show.”
David Oualaalou and I have a hard-hitting talk about how geopolitics. fintech, sanctions, and CBDCs converge to speed de-dollarization in our new multipolar world.
Full episode on youtube: here
Disclaimer 1. I am disgusted with the war in Ukraine and am no supporter.
Disclaimer 2. De-dollarization is a slow process. It would be easy to say “nothing is happening.”
Sanction evasion isn’t new! Iran has been evading them since 2012. Russia’s economy is hard to cut off.
9:30 Sanctions who pays?
Ordinary citizens pay the price for sanctions, and they are causing de-dollarization.
11:30 Yuan as a reserve currency?
No not yet! The yuan isn’t ready yet. YES, the yuan can become a “regional reserve currency" within ASEAN nations and BRI countries.
Gold? A few years ago I would have told you that you were nuts. I DON’T SEE A GOLD BACKED YUAN, but Russia and Iran are building a gold-backed stablecoin.
24:00 💣TRUTH BOMB:
That global south nations are looking for USD alternatives is a problem! They will eventually find one!
We are changing from the post-WW2 US-centric world to a multipolar one.
28:55 Why do you write about geopolitics?
Fintech is now a pawn in the great geopolitical game! You can’t talk about fintech without touching on geopolitics.
30:30 Exec order 14067?
The exec order doesn’t authorize a CBDC, just research! People say this to create fear or sell gold and crypto.
37:00 BIS Project Icebreaker?
The BIS is building CBDC transfer systems, that are critical infrastructure. BRICS nations will all have CBDCs and use these transfer systems.
42:40 CBDC and sanctions?
Yes absolutely! CBDC is sanction resistant.
45:03 💣TRUTH BOMB:
Next time you hear the Fed say “there is no first-mover advantage to developing a CBDC,” don't believe them!
46:30 Africa and CBDC:
Africa is looking at CBDCs for financial inclusion and lower cost of international cash transfers.
49:30 Brazil and Argentina’s "Sur:"
Brazil and Argentina are not pariah nations and are looking to de-dollarize! They want a cheaper way to trade.
53:30 Will other South American countries join?
If the Sur is any good, others like Mexico will use it!
56:00 Could the Euro dissolve?
No way, no how.
58:30 The digital euro?
The digital euro is an insurance policy for the EU. Do not expect the EU to move in lockstep with the US forever.
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Rich Turrin is the international best-selling author of "Cashless - China's Digital Currency Revolution" and "Innovation Lab Excellence." He is number 4 on Onalytica's prestigious Top 50 Fintech Influencer list and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking. Living in Shanghai for the last decade, Rich experienced China going cashless first-hand. Rich is an independent consultant whose views on China's astounding fintech developments are widely sought by international media and private clients.
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