China's increasing use of digital currency may speed use of yuan in cross-border trade

CRYPTOCURRENCIES and blockchain technology first burst onto the world stage in 2008 with the pseudonymous posting of a white paper on a new way of transferring value over the Internet. Today, crypto assets boast a combined market capitalisation of around US$350 billion, according to CoinMarketCap, with major financial institutions such as mutual funds, endowment funds investing alongside hedge funds.

In April 2020, 161,500 bitcoins (worth around US$1.1 billion at that time) was transferred and settled by Bitfinex in 10 minutes with a fee of just US$0.68. In comparison, international money transfers can be sent only during banking hours and usually takes multiple days to settle with fees of around 1-8 per cent.

The widening acceptance of cryptocurrencies reflects a growing preference for digital currencies. The problem is that transferring items of value online across borders is far more difficult than simply transferring messages, videos and photos. The current global payments system is fragmented and costly with duplicative layers of supervision and intermediation. Although much of retail banking has gone online, wholesale banking and, in particular, international trade finance has lagged, with most of the cross-border transactions handled via a labour-intensive, paper-based, and time-consuming process.