For the past 10 years, China has been reinventing the financial side of global trade, using smart logistics to automate shipping contracts, and digital cash for settlement. As early as 2019, the People’s Bank of China had been testing a digital yuan, using Ant Financial’s mobile payments platform. By 2022 they were ready to roll it out domestically.
From there it was just a matter of time before the e-CNY became the currency of choice when trading with China. But that’s only part of the story. Smart logistics, seamlessly connecting supply chain nodes and physical storage and transport, provides early warnings for active risks and verifies the production, shipping, and storage of goods, every step of the way. A sovereign digital currency, backed by the central bank, simply enables the multitude of payments to be automated too.
Which means of course, that there was no longer a need for large offshore deposits of reserve currencies – like dollars and euros – to guarantee the process. China was not only the first to roll out its digital yuan, it’s also the world’s largest exporter; it was inevitable that the e-CNY would become not a reserve currency, but the premier currency for enabling smart logistics. And the digital yuan was integrated with SWIFT, right from the start.
Now traditional banks for international trade financing find their deposit base has been whittled away, white-anted over time by CBDCs – central bank digital currencies. We’re talking tens of trillions of dollars that are simply no longer required to be held in escrow. All the trading partners are overjoyed that friction and inefficiencies have been removed, and end customers are the real winners, as unnecessary costs have been taken out of the final price.
But for the banks and their investors, and the intermediaries who benefitted from the decades-old international banking system, it’s a matter of declining fortunes, and in some cases: Goodbye!
ANALYSIS >> SYNTHESIS: How this scenario came to be
Displacing the dollar
To quote David P. Goldman of The Asia Times:
Big data can track a thimbleful of iron ore from a Brazilian mine to a blast furnace in Harbin to a roll of steel wire at a Tangshan steel mill, to a nail factory in Xingtai, to a warehouse in Shanghai, to a container ship en route to Long Beach, California, to a truck headed for a hardware distributor in Denver.
The production, storage, and shipment of goods will be verified every step of the way. The blast furnace will pay the Brazilian mine on delivery, and the rolling mill will pay the blast furnace, the nail factory will pay the rolling mill, and so forth. None of them will have to borrow money from an international bank and keep it on deposit for months while waiting to see whether the delivery arrives.