Many of the well-worn arguments about the “reclaiming the dollar” canard, which reignited at last month’s BRICS summit, are missing key perspectives. this is probably the most important thing A systemically important use case for Central Bank Digital Currencies (CBDC) – i.e. as a cross-border payment instrument.
As is often the case with innovation, in this case widespread adoption and impact appears to be driven by tighter constraints that outweigh the usual inertia. Otherwise, a slow tenure pattern of competing pilot projects could have maintained CBDCs for international trade. To get the attention of policy makers and prioritize them with many other desirable things. The constraint in question is the US financial sanctions against Russia. Reflecting this, a bill to activate the electronic ruble was passed by both houses of the Russian parliament in August and is due to be signed into law by President Vladimir Putin next week.
The CBR highlights “facilitating cross-border payments” as the main benefit of the electronic ruble.
Cut off from the global US dollar system, Russia has no choice but to find alternative agreements for international trade. Out-of-the-box options are to settle in the currency of your trading partners and use RMB for payments with trading partners outside of China. The renminbi has therefore become the currency of settlement for its rapidly growing share of Russian exports (top chart), and especially imports (bottom chart).
However, non-dollar payments via correspondent banks using messaging systems other than SWIFT (both China and Russia have developed their own international payment systems) are relatively costly and inefficient.
As such, such payment methods are not (yet) sanctioned by the United States and thus, unlike Russia, are artificially preferred in trade between countries that have other options. ing. Political will can always trump commercial logic, as evidenced by the gradual shift of Gulf oil and gas sales to China toward local currency settlement. Political motivations range from the strategic goal of countering U.S. hegemony to a pragmatic reduction in the risk of being subject to the U.S. sanctions currently imposed on Russia. This political impulse, combined with the emergence of a cheap, fast and secure global payment system, will be a winner. CBDC unlocks the potential of such systems. The “safety” factor just mentioned is operational and political (outside the scope of the US Treasury Department’s enforcement).
Through its Hong Kong-based “Innovation Hub”, BIS has coordinated a live experiment in October 2022 involving the settlement of commercial invoices and foreign exchange transactions on a single network with four CBDCs. – Those of the People’s Bank of China, the Hong Kong Monetary Authority, the United Arab Emirates and the Central Bank of Thailand. Screw” verdict In this practical value experiment (even limited to the conservative range of $22 million equivalent),Direct participation in peer-to-peer payments to ensure the safety of central bank funds across multiple jurisdictions” teeth “realistic and achievable goals”.
mBridge ledger
Russia was not involved in the experiment, nor was it involved in the ongoing development of the platform coordinated by BIS at this time. Based on the new blockchain, mBridge ledger. But there is no doubt that this or a similar platform is part of Russia’s plans. CBR governor Elvira Nabiullina made a similar statement when presenting the electronic ruble project to President Putin on August 19.
Her reference to a “common payment center to which CBDC platforms from different countries can connect” was made last week by Sergei, the longtime Deputy Minister of Finance for International Financial Relations and now Russia’s Head of New Developments. Mr. Stolciak made a similar statement. Bank (or “BRICS Bank”).
Stolchak deserves more attention than what the FT picks up on ignorant Russian parliamentarians. explained On August 31, it was reported as “Poor ramblings from Moscow about the unstable dollar challenged by the new BRICS currency.” At a conference in Moscow the next day, Mr. Struciak said the BRICS currency story was “utopian” and that the real focus was on establishing “a multilateral clearing and settlement system in national currencies, not bilaterally.” .
The bottom line is that such a system based on CBDC could be “production ready” (in BIS terms) within 12-24 months, which is worth monitoring. The Russian angle is interesting for two reasons. This is despite Russia becoming a CBDC participant somewhat later than several other emerging economies, including China and various island nations in the Caribbean and Pacific. However, Russia is not yet out of the start gate and has fully built a blockchain-based CBDC platform ahead of most DMs (Sweden may be an exception). DM’s reluctance in this area stems from concerns about financial stability and, more precisely, the viability of commercial (especially individual) banking business models. DM authorities may be interested in Russia’s balanced approach here.
The Russian CBDC scheme requires participants to have a bank account to transfer funds up to Rb 300,000 ($3,000) monthly to a new digital wallet on the CBR platform, and the resulting electronic ruble is Cannot be used for loans or loans. Receiving deposits is only for payments and transfers, which is free for retail users, but businesses pay his 0.3% fee per transaction (very competitive compared to bank and payment card fees).
Back to Russia’s two angles on the use of CBDC in global payments. First, Russia may facilitate the operational construction and deployment of such systems. Second, Russia’s involvement will help expand the use of CBDCs in cross-border payments as part of a broader global fragmentation theme explored last week in a book by Dario Perkins. deaf. latest macro image.
Both points reflect Russia’s own sanctions-based incentives for the use and facilitation of CBDC payments and Russia’s importance as a trading partner (mainly for commodity importers, but also hollowed out by competing Western suppliers and stems from the combined importance of Russia as a market in which the CBDC payment network will be formed.Lower the risk of secondary US sanctions, making it easier for other countries to sell
Therefore, the first large-scale CBDC-based international payment system is likely to be firmly on China’s orbit. This outlook does not change the macro-wide conclusion that global de-dollarization will be a slow process.
To the extent that this development accelerates the relative decline in dollar-denominated cross-border payments, this will, at best, be indirect to other, more important bases of US currency dominance: foreign exchange reserves and international lending for trade and investment. will only affect. .
Therefore, the middle bar in the chart above may move faster than the horizontal bars. And while contributing to the long-term de-dollarization trend, this CBDC-led shift will become more relevant for most of the investment horizon as a catalyst for de-globalization.
Christopher Granville Managing Director, Global Political Research, TS Lombard
This article was originally released as a daily note. TS Lombardis a world-renowned independent provider of economic and investment strategy research with an impressive 35-year track record of practical ideas and, from 2022, a division of RBI publisher GlobalData. .
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