Photo: AFP/Anadolu Agency
Marcell Horváth
08/11/2024 11:12
The solution for Hungary could be the development of a stable financial centre in the centre of Europe with a complex web of cooperation. Accordingly, together with the development of diplomatic relations between Hungary and China, financial relations between the two countries have come a long way and Hungary has now built up extensive financial cooperation with China, which can lay the foundations for it to become one of the region's leading financial hubs in the long term.
The main megatrends of our time, such as sustainability, technological innovation and digitalisation, as well as geopolitical challenges, have led to an international reflection on the financial system of the future, or the future of the financial system. Highlighting one of the megatrends, we see that technological innovations such as artificial intelligence (AI), blockchain and automation are fundamentally shaping economic and social life. These new technologies are not only creating new industries, but also changing the labour market. They require new skills and applications and will have a significant impact on the global economic structure and technological competition. Digital transformation is taking place all over the world, but particularly strongly in Asia. According to the IMF report, the contribution of digitalisation to economic growth in Asia is among the highest in the world. Data-driven decision-making, e-commerce and the rise of digital services are all creating new opportunities for businesses and consumers.
Since 2014, the People's Bank of China (PBoC) has been working on central bank digital currency (CBDC), mainly with a view to preserving monetary sovereignty. In addition to the various crypto instruments, this is also explained by the specificities of domestic payments, where two giant companies (Tencent, Alibaba - Ant Financial) "dominate" electronic payments. While the PBoC stresses that it does not aim to displace the two popular mobile payment apps (Alipay, WeChat Pay), it does want to ensure access to central bank money in a cashless world, and has therefore involved large tech companies in the design of the CBDC, in addition to commercial banks.
The e-CNY app is now widely available in test areas and will be rolled out on the Alipay and WeChat Pay platforms, alongside the big banks. Typically, it can be used with QR code payments, as is common in China, and the initial balances are provided to the public through prize draws and coupons. According to the PBoC, the first four years of the pilot, up to May 2024, have resulted in a total of 6.6 thousand million RMB (about 910 billion USD) worth of transactions, triple the figure from a year earlier.
In addition, Chinese CBDC has also entered the international arena and a number of multilateral collaborations have been launched to develop cross-border solutions. The PBoC has been involved in the development of the mCBDC Bridge cross-border CBDC platform since 2021, together with the Hong Kong Monetary Authority, the Bank for International Settlements (BIS), and the central banks of Thailand and the UAE. The project promises simpler, cheaper and faster international payments, bypassing the US dollar-dominated international financial payment infrastructures (e.g. the SWIFT global electronic financial messaging system). mCBDC Bridge is already in the access phase of a working prototype, the progress of which will also depend on the ramp-up of eCNY in China. And China has an interest in the success of the mBridge, as a member of the BRICS group, a major proponent of settlement in national currencies, and could benefit from the development of an alternative international payments infrastructure with the Global South amid rising geopolitical tensions with the US.
Seeing the changes and innovative transformation in the global financial system, the Hungarian state, spearheaded by the central bank (Magyar Nemzeti Bank - MNB), has developed a balanced financial cooperation with China in the last decade, in addition to the Western financial relationship. Among the world's largest banks, the Bank of China and the China Construction Bank (CCB) have chosen Hungary as their regional headquarters. In addition, the CCB has also planned to set up a FinTech Innovation Lab, among other things with the aim of testing the Chinese digital central bank money in actual payments in Hungary.
MNB quickly established cooperation with the Digital Currency Institute of the Chinese central bank, which is responsible for the development and testing of digital currencies, and on several occasions they discussed cutting-edge Chinese technological solutions, which the Hungarian central bank used for its own project. Since 2023, MNB has also participated as an observer in the mCBDC Bridge programme. Furthermore, since 2019, payments via Alipay, one of China's leading mobile payment apps, have been available in Hungary, and the first Alipay payment in Hungary was made at the MNB Budapest Renminbi Initiative Conference. It should also be mentioned that the Domestic Instant Payment System (AFR) was launched in 2020 under the coordination of MNB, allowing individual domestic transfers to be completed electronically in less than five seconds, 24 hours a day, 7 days a year. AFR 2.0 has brought further innovations and from September 2024, the Hungarian Instant Payment System also offers QR code payments similar to those in China. These developments are of particular importance for the development of the Hungarian financial centre, as they contribute to the modernisation of the financial sector and the spread of cashless payment solutions, strengthening the country's international competitiveness.
In a context of increasing geopolitical competition and fragmentation, nodes providing a platform for West-East cooperation are becoming increasingly important. These HUBs, in addition to developing a considered and diversified geopolitical approach, are building on their accumulated resources, especially in knowledge and talent, to become financial, technological and knowledge hubs, building balanced and complex economic and financial links.
The author is Executive Director for International Relations of Magyar Nemzeti Bank, the central bank of Hungary