But can we expect a geopolitical shift in favour of certain regions and countries thanks to digital central bank money? The rise of new centres of power requires a new financial system. And financial technological breakthroughs are not without geopolitical consequences.
Today, more and more countries are launching CBDC research & development and testing projects. The countries involved in CBDC development together now account for nearly 95 percent of world GDP (according to the Atlantic Council). But in the long term, what geopolitical advantage can be gained by countries that move faster in developing a new digital currency?
According to the PricewaterhouseCoopers (PwC) CBDC Global Index 2022, Asia, the Caribbean and South America are leading the way in creating the necessary infrastructure. China is the first major economy to have made significant practical progress: since 2020, e-CNY (digital yuan) has been tested in real-world cash flows in several metropolises. According to official reports, more than 261 million residential and corporate digital wallets have been created so far, with a total value of nearly 87.5 billion renminbi (RMB) ( 13.7 billion USD) in transactions to date. China's main motivation is to create a state-run payment solution that can operate offline, in addition to the systems of private payment providers (e.g. Alipay, WeChat Pay). In addition, e-CNY could of course also stimulate the international use of the yuan, and the real geopolitical prospects lie in this.
The digital yuan could offer an alternative for countries or market players who want to bypass the use of the US dollar or the now much-vaunted SWIFT network (the US-dominated global electronic payments messaging system) for international transactions, or who are simply looking for a much faster, more efficient way to make payments.
One of the cornerstones of the role of the US and the Atlantic powerhouse in the current world order is the function of the dollar as the world currency. Thanks to the international clearing systems, which are heavily influenced by US banks, the US has a view of international financial flows and can monitor compliance with financial and economic sanctions or pursue other foreign policy objectives. China, on the other hand, offers a new alternative based on mutual benefit, which can be joined without any special economic or foreign policy conditions in the framework of the New Silk Road. And with the power advantages thus gained, China and the e-CNY would emerge as the most serious challenger to the US power position in a long time.
The author is a International Adviser at Magyar Nemzeti Bank (the central bank of Hungary)