77 - China's Digital Currency Revolution | Richard Turrin

Transcript

[Music] welcome to bank list where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless wow epic episode on china's central bank digital currency a digital currency revolution that's going on that we really haven't uncovered in crypto up to this point richard turner was the perfect guest for this incredibly comprehensive overview of what's going on in china in this important field david what were uh what were your thoughts on this episode yeah the biggest takeaway i had is that unless you have actually like intentionally gone after and researched

what china is doing with this central bank digital currency is then you do not know and so there is a mountain there's an absolute world uh going on in china that unless you have actually been researching yourself like you don't know what's going on because what i thought was going on and turns out what is actually going on are two totally separate things uh and i thought the central bank digital currency was just a basic you know some sort of fintech layer on top of a central bank that last smoking years yeah like blockchain not bitcoin nonsense yeah no no no like richard turin uh laid down the story of the chinese central bank digital currency and it is a force to be reckoned with and he was a fantastic uh guest to tell us the story uh and i

think the other really cool uh thing about central bank digital currencies is that they are inherently inspired by crypto by bitcoin by the technology that we created but uh the chinese bank's digital currency has taken the the some of the parts that are most suited to them and applied it to their banking layer and but what is the resulting product of that is something much grander than i think what people uh give credit for yeah it's so true though so like we get these news clips uh you know come out of whatever and i don't know if it's like a east-west communication thing or like a you know translation thing or what it is but it's just suddenly you know china's doing this with the central bank digital currency and there's never any detail

right i've like forever since i've been in crypto wanted to understand the detail of this thing because it's been an active project since like 2014 2015 we've been hearing about it and for the first time this is a comprehensive overview and like here's what i feel like this story is is david over the last 10 years while the u.s banking system stayed stagnant china really digitized its banking system and it turns banking services into like a giant app platform with wechat and alipay these are organizations you're going to find out more about um through this this podcast and through this digital banking functionality it's really leapfrog the west so i made the comment like hey here we are with uh ach transfers that take

three days wire transfers we have to show up in person you don't have to do that in china anymore right like they digitize this and now they are launching a central bank digital currency appears like they're dead serious about it like it's coming 2022 it's coming and this is actually the second version like a v2 of their entire digital currency strategy so all of this information is kind of like uh news to me and i feel like it's misreported in the west and this is like what is actually going on this is the story it's funny that you you mentioned the times richard said hey thanks to cryptocurrency for introducing it like he almost said this as if like hey central bank digital currencies we'll take it from here guys like we are the successor right thanks

for all all you did cryptocurrency but like we'll take it from here and i think he's very bullish on central bank digital currencies both for china and for for all countries and so it's a really interesting perspective that i don't think you'll you've ever heard on on bankless right um but i do forever really or ever i do think it is one version of the future uh that uh that could possibly play out here uh we frequently talk about uh the final boss of crypto which is you know the the central banking layer the or the bit more specifically the you know the federal reserve of the united states and while that's true that final boss is also like this very old old king the old king with the old

grey beard and and i would like to introduce a new like character into this story uh and that is like crypto's shadow twin which is a central bank digital currency and so while there's this old boss that we want to defeat there is also our equal who is our like shadow twin and that is the same our nemesis our nemesis maybe but also that's also another topic of conversation is because while you know cbdc's might be crypto's evil shadow twin it has actually done more for banking people or at least at least the revolution of trying to step towards the cd scbdc because this has been a long arc and and richard is about to tell you that long arc towards china's banks uh

is trying to assess cbdc but that that uh this progress that china has made towards the cbdc has actually banked so many more people that than crypto ever has and and so while we while we think that cbdc's in crypto are our evil shadow nemesis it's actually done a lot of good for the world so that is something that we have to come to terms with as an industry uh when we uh talk about cbdc's yeah i think that's a really interesting discussion i i want to get into maybe a few definitions really quick here first in the intro uh so when richard refers to r b versus the juan uh there's not much difference there those two terms are both um like ways to say basically china's central bank digital or china's digi china's

currency rather the rmb is kind of the name of the currency the one is the unit of account those are used interchangeably you also use this term nfc that is a method of wireless data transfer so when you go to the store david and you got your apple pay and you're paying and it's like touchless that uses nfc technology that's a technology that's kind of picked up in the west not so much in china where they're using qr codes for those things so a few terms for you before we get into the episode i think you'll find that during this episode we didn't actually push back very much on what richard was saying so there were times where um he'd say something about like you know you know privacy or about the centralized you know control and we didn't push back

much with the bankless vision part of that was like we just wanted to listen to what he had to say and find out as much as we could about central bank digital currency the other part was we were kind of short on time but if you were interested in david and i's raw thoughts on that episode right and kind of the pushback points the puts and takes of hey they're unbanking a lot of people but at what cost this cost of centralization how does cryptocurrency uh stack up against the central bank digital currency you will want to tune into the debrief this week the debrief is the raw after the episode episode where david and i give our thoughts about what we just listened to you can get the debrief if you are a bankless premium subscriber to do that

go to newsletter.banklesshq.com subscribe there'll be a link in the show notes so you can become a premium member and access that debrief wow um a lot to unpack here but we are going to get right to the episode before we do we want to thank the sponsors that made this possible bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an autonomous piece of software on ethereum which is what ryan and i call a money robot no human counterparties or centralized intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to

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platform for asset management and decentralized exchange dive into the balancer pools at app.balancer.fi hey bankless nation we are super excited about our next guest on a topic we've been wanting to cover for a while we just recently found the perfect expert this is richard turn he is here to tell us about china's central bank digital currency this is a topic that's been swirling in crypto circles for a while quick intro he's a best-selling author he's a former fintech executive at ibm had a 20-year career working for global investment bank so he's very familiar with the banking system as it exists he spent the last decade decade in shanghai where he had a first-hand view of what's

going on in china's fintech sector we're definitely going to dwell on his some of his personal experience and he wrote this fantastic book it is called cashless you're listening to bankless but we were talking about a book called cashless and cashless really describes the digital currency revolution that is going on in china right now richard we are delighted to have you all the way from shanghai how are you doing today sir um david and ryan i'm doing great and i'm delighted to be here because bankless cashless central bank digital currencies all go together so it's a really wonderful mix-up of them all um because really um central bank digital currencies offer us

in short something new and that is really the ability to go bankless and cashless and they're both part of the same solution and um they're going to change how uh we live in our world and yeah it's going to be bumpy getting there but so let's so yeah so let's let's hit me with as many questions as you want we're going to have a ton of questions because i've been i've been waiting probably for the last like three years to have a conversation with somebody who's actually knowledgeable what's going on in china their central bank digital currency but i actually want to start with my experience in the us because i know you have experience in the us with its banking system today and here's the thing richard i live in the

us i still write checks okay i still have to show up physically at a bank in order to wire funds when i do so i have to i have to wait five days for it to arrive at its destination as a business which we own a business i still have to pay three percent of my business sales to credit card companies like visa what is going on like where did the us go wrong with its existing system my impression is china's a little bit differently but like where did the us go wrong how come the banking system is so stagnant that look that is a wonderful question and to everybody out there you should be mad look i had it right okay so look let me tell you a story let me i'm going to

tell a story and then come back all right so i'm living in china and i need some money sent around i have a joint account in the u.s i call my brother and i said look you got to send some money over here he says all the banks are closed i can't i said what do you mean you can't send anyone i call the bank no if you're going to do a wire transfer you must come to the bank thank god i had a bank account in singapore because my singapore bank account allowed swift transfers that i could implement over online so why should i be able to use a normal bank nothing special in singapore to send a swift transfer to myself in

china and why can't i do this right so next part of this ready i have to pay some other stuff and i go to usel all right so i use wechat and alipay every day they're my you know like everybody else in china these are the way we pay right it's easy i go to uh for the first time it's security locks me out like four four months in a row for me paying a rent check to a you know to a to a landlord it was just nuts and it was really a compare and contrast how easy it is with china and how hard it is in the us to do some of this online banking and yeah you hit it

how long do we have to pay credit card companies three and four percent and look i use square for some book sales and some other stuff and i and i certainly pay with paypal and i'm paying four and five percent because what we call fintech in the west was basically built a time on top of these credit card rails that protect incumbents with large fees and that's why i often say and i know it's controversial i often say that fintech in the west or u.s and eu is a lie yeah they made the interface better but

underneath it all they are stuck on this rails on the credit card rails which basically are taking taking your money and for what purpose at this point you know it's how long will you pay three or four percent interchange and merchant fees to a credit card company how long are we signed up for this forever and i don't think so and that's that's the hope that central bank digital currency and digital currencies that are perhaps stable coins offer to people the hope that we can escape from what is a system that's rigged against you it's bad and i and i think so i really believe that with all my with passionately look look so do we that's

why we that's why we started bankless is because the banking system sucks and we want less banks and this is uh we're talking about the west here and i noticed you you mentioned zell which is an app from wells fargo so you're speaking our language we we like to knock wells fargo all of the time and you contrasted that with with wechat which can do like instant payments and all sorts of other magic for very low transaction fees free so free yeah for free let us make it clear it's free okay there's point one percent not on payment but when you move money from a wechat account back into the bank you have to pay a small point one point one percent so but that but all the all the transfers you want uh in and out to

pay out of your bank is 100 percent free no problem so this is cool so let's let's talk about because um i've been reading your book richard because this is like a very scarce content i think because i've never seen an exhaustive in-depth look at what uh china is doing with their digital payment system there's in in their central bank digital infrastructure so i've just been like eating this book up and once again bankless listeners it's called cashless we'll include a link in the show notes so you guys can pick this up too but i want to set the scene because you really described in the first part of your book yeah there it is there it is guys there it is this is a qr code we're going to talk about qr codes soon um yes there is a qr code on the cover

of the book live it goes to a great it goes to what i hope is an amusing site for you guys i just learned the importance of qr codes too from this book partially but i want you to set the scene because you paint the scene in the first part of the book about um you know i i think your major point was this this was a revelation to me that uh china isn't kicking off it um its first version of a central bank digital currency right now it's been doing a first version of not quite a central bank digital currency but let's call it a digital currency system and now it's about to kick off its second version so in the west we hear headlines like china is getting ready to pilot it's central bank digital currency and what i learned from your book and your main point is

like no guys actually china has had a digital currency strategy for the last 10 years and what's actually moving from is from phase one to phase two i wonder if you could tell us for people who aren't familiar with what's going on in sort of this phase one what's been going on in china over the last 10 years what do you mean by this version one of china's uh digital currency system abs absolutely that's a wonderful question and um i would give you a an a-plus grade for getting the the the the primary theme of the book down and so okay look let's let's dive in china

is already a big user of digital currency through wechat and alipay however it is not a central bank digital currency it is a corporatized system that uses the rmb and it they're they're called wechat and alipay are called world gardens they're platforms and you take your money out of your bank and you put it on the wechat platform or you put it on the alipay platform either one they sort of are separate from one another money doesn't go across but it goes via your bank okay it's fiat currency but it's digitized

and it's made into an easy payment mobile easy mobile payment system all right does that make some sense so this is what i call the first generation how successful was it it's been online since 2014 [Music] and basically it's the total amount of mobile payment in china is around 52 trillion dollars in 2020 and what does 52 trillion dollars mean that's a big number okay so let's give it two comparisons so 52 trillion is 3.7 times the gdp of china so china's gdp is

is 14 trillion and how do you get a payment number bigger than gdp well it's because payment flows in cyclic fashion so i'm buying you a coffee i pay the person who makes the coffee but you want to pay me back so the cost of the coffee goes from me to the coffee vendor then you pay me back and then the money goes from the coffee made a coffee shop into its bank so that money has has flowed in that example three times you to me me to the coffee guy coffee guy to the bank and so so money goes around the system so great example of how huge digital payment is in china so okay 52 trillion

dollars how about this it's around a little less than twice all of the credit card use in the planet add up all credit card payments on the planet it's china's digital mobile payment is twice that that's incredible yeah mind-blowing right so they're fun statistics but what it really means now here's the real killer if you look at the percent of gdp that has a digital connection right digital gdp china's digital gdp is 30 percent sorry i got it wrong 37.8 almost 40.

the u.s and the uk are coming in at 8 and 7.7 respectively no sorry i got to know 9 and 7.7 i'm really losing it today so 9 for the us and 7.7 for the uk which were comparable just good numbers to compare so what digital per payment version 1.0 did is sweep the nation with free payments for all and what it allowed the economy to do is to digitize to a deeper level and to have people using payment in a using digital payment in a

way that allows them to digitize and put their business put their service put what they do online and because it and why because it's free for everybody so um that's version 1.0 which has led to the broad digitization of the the chinese economy not all remember it's only it's only at a mere 37.8 percent it's got a long way to go but now we're looking at the next tool and that next tool is version 2.0 digital payment which is where the government says okay we're going to make

cash money digital and you don't need to use visa mastercard alipay a third-party company to carry the payments we're going to use the central bank and they're going to issue the money before we get to that before we get to that second stage uh richard i i'm wondering if you could um do some more to sort of paint the picture for um our western audience listening to this because like you mentioned the numbers 52 trillion in annual mobile payments just to give folks perspective this again is from richard's book apple and google pay this was i think 2019 or 2020. uh they recently broke 540 million okay so 52 trillion

and then the us the us's largest tech companies apple and google pay uh 540 million so 52 trillion to million that's like th this is incredible so but but like i don't think people uh in like the west living in the us and other places actually have a the scope for what alipay and wechat actually are because it's sort of like this um social media platform as i understand it so think of like google plus facebook and also your entire banking system all rolled into one mobile app experience so they've almost created like banking as a service a banking platform

inside of their ecosystem i'm wondering if you could illustrate for us richard like a day in the life okay sure like how's it different than like you you got the the typical american who you know we've got credit cards in our wallet and we have a mobile phone and we're using like you know social media platforms this sort of thing how is that different from the experience of using uh an alipay in in a we wechat in in your regular day in china as a as a you know somebody living there look absolutely and and uh wonderful questions so let's get into it okay so this is a very common question i hear it all the time i have digital payment in the west

i have i i have google or apple pay on my phone i have tap and uh or swipe with my card and how is it any different you see most people in the west view payment as simply the act of paying so google apple pay boom done you paid and same thing with tap on your card you just pulled it up to the device bang your guns you see that is true that is digital payment and it is fast and convenient it's good i'm not knocking it but it's only a very small sliver or part of what alipay and wechat pay deliver

and what they deliver is this concept of a 360 degree lifestyle platform okay in the case of wechat that platform is built around social media services where you talk to talk to people on your wechat you give them messages it's kind of like whatsapp on steroids plus a little bit of facebook rolled in for people who don't know it and in the other one which is alipay it's built around what is essentially their killer feature is uh selling stuff like amazon so it's got that but it's also got a complete and this is what you talked about before it's got

complete banking services investment services life insurance you name it you can do it so what's the difference all right so my day starts out on wechat where i text people and i am gonna for today actually as a matter of fact i'm gonna send my landlord rent money here so boom i go to wechat i link it's already linked to my bank account i pull the money out of the bank account i send it to my landlord done all right but what also happens on these platforms is that i can do banking services now i can do banking services through the the specific banks that are associated with alipay or with

wechat pay one wechat pay unsurprisingly has we bank which is a digital online bank and alipay has my bank my my aunt is my yi m.y which is why it's called my bank all right and those were in 2014 the people's bank of china licensed the first private digital banks and that was sort of the breakthrough moment and my bank and we bank were among them and basically what they allowed was for banking to be combined with payment and then after that came money

management buying stocks bonds and stuff and now by the way it's really funny because other banks have apps that you act that you actually access through wechat and olliepay so icbc and other banks have full almost full banking apps that are on the wechat and only pay platform because they have to be where the clients are but i diverge what does it mean to be on the platform what does it mean so when you use apple pay yes you can now you you pay for stuff but it's not a entry way into a ecosystem of services when i use alipay okay i'm like all

right i'm on my ollie pay now i pick what i want to do i want to buy stuff okay i want to pay for my subway trip okay it's got an app for that it's got a capability for doing that i want to buy insurance i want to go to the bank i can cover almost 360 degrees of my life on that app and that's not the same as with google payer or apple pay or a credit card so yeah it's this concept that you can do anything on the app and that's fundamentally different from anything we got in the west and

it's a big deal and we're getting there they're you know we call these super apps and now the big battle now is to build platforms and to build super apps in the west we're going to be a whale before we get there because of regulations but it's a good service and it's generally very um productive for people it makes it makes you your life better and no just because you got a credit card or apple pay or google pay doesn't mean you got a super app in your pocket and the west is surprisingly far behind in all this yeah richard as you said uh you can actually pay people money inside of things like facebook messenger inside of

io imessage on your apple device and so many other different ways to afford that tech companies in the west are trying to allow payment exchange inside of their app and i would imagine that maybe one of the reasons as to why there isn't these super app services where there's further and further banking services inside of these applications is because people in the west never adopted these things like i've never sent money inside of facebook messenger i've never sent money inside of like my imessage on my iphone even though it's possible even though it's super convenient and so to some degree i would imagine that the reason why these banking services aren't being built out is because people aren't using the baseline payment services at all and so my question to you is maybe

this is a a cultural divide maybe there's something about the the people of china and the people of the east that are they're just more suited to uh these kind of services than than people in the west uh because uh i would i would imagine if there was actual adoption of these digital uh payment rails that we that we have available to us there would be a stronger inclination to build out some of these banking services inside of these apps yeah look absolutely there is the sensation in the west that people do not trust big tech and if you've got to trust somebody uh online um and you've got a choice between your bank and um mark zuckerberg you're gonna pick your bank so yes um there's no quite quite

there's no doubt about it just look one funny uh thing is that the um facebook page has the ability to use qr codes just like wechat and alipay in the west which i think is amusing but i diverge they copied that do they copy that oh absolutely so it's a great example of tech and the tech in the west copying china and the defining moment for wechat and alipay was when they wanted to make payment available universally to everyone in the country and the easiest way to do that was to use qr code because the cheapest smartphone with a with a camera could use a qr code

compare that to the same year 2014 when this all launched in china compare that to apple pay would that also launched in 2014 that forced you to buy a new iphone 6. you couldn't use apple pay with an older version iphone because it didn't had didn't have nfc near field communication built in so one is payment for the people use qr code because i can because we can get it to everybody and the other is payment for a limited slice of people who can afford to buy a new um uh iphone 6. so that was sort of uh that was sort of a a big gap but but yeah let me go back to let me answer

the question yes no question about it there is a split between how china approaches how china approached payment and how the us approached it and that big moment came in 2014 when the people's bank of china the central bank and the banking regulator the cbrc um licensed the first private banks in china and the banks that they licensed were ready they were a bank for alipay a bank for wechat or 10 cent the parent company of wechat is 10 cent a a bank for

baidu and a bank for sunning now let me explain who these are ready so alipay is or so uh uh alibaba is the equivalent of giving a is the equivalent of amazon so dave give amazon a banking license tencent or wechat is somewhat like twitter or facebook give them a banking license baidu is the equivalent of google in china give them a banking license and sooning the last one in the list is china's largest electronics retailer i don't know what the equivalent would be give them a banking license so look china had

a problem with um underbanked and unbanked population had a massive unbanked population and it realized the only way it could reach them was through digital and by giving banking licenses to these digital players they cracked open the um ability of big tech to reach people and increase the quality of life and the gdp coming out of tiny little villages where there's never going to be a brick and mortar bank ever because they're just too small compare that with the west now we started our conversation talking about

paying three and four percent of credit cards so fintech in the west is not a label allowed to have a banking license must use the services of credit card companies must use the credit use the service if you look at our neo banks they're all built on top of a bank which white labels its services out to the neo banks there are a few cases now where neo banks have banking licenses the first two or three but so what we're looking at is the opening of the banking system to big tech in china and what we're looking at in the west is the closing of the banking system to big tech and the

maintenance maintaining a division between big tech and um the banks uh uh basically um basically making the throwing back the progress of digital banking in the in the us in order to keep the um monopolies of incumbent banks intact and that's that's a bad way to say it but it's but it happens to be true is this what you were saying about how credit card companies are just helping banks maintain their grip upon uh their status quo is that what we were saying that

earlier is this more or less what you were referring to absolutely so look there's a regulatory paradigm that is unchallenged in the west and in the united states and that paradigm is the banks are on one side of the spectrum tech companies are on the other side of the spectrum and there is no way for them to come meet comfortably and the occ tried to have a fintech banking charter which was held up in the courts unsurprisingly held up in new york state which is one of the biggest states for banking so the big banks are all there and they challenged it very heavily in the new york state courts

it's sort of in limbo right now but the concept that there is this division between banking and big tech that will never come together in the u.s and there's arguably good reasons for it there are some good reasons there i'm not saying it's all bad but my point is there is this division that is not coming together in the u.s and in china the ability of big tech players to have banking licenses basically changed um who they were and what their roles in society was um so that's why when you look to these services when you look to these surveys do you trust big tech with

banking do you trust big tech with your money in the west the responses are always low meaning we don't trust big tech with our money and in china in particular they're always high because people have been trusting big tech with their money for more than a decade here it's almost a decade it's no big deal it's you know it's considered perfectly natural yeah i think this is uh this is a huge insight from your book uh honestly richard like that you mentioned like david mentioned maybe some cultural uh reasons for for adoption in in china versus the us but i i would rate this kind of regulatory one higher it's basically like the banking lobby and other other forces maybe have sort of

kept um big tech from eating the banking layer in the u.s right so you know this andreessen horowitz quote is like software's eating the world well software is eating the world we talk about this often and what china chinese regulators essentially allowed to happen is for software to eat banks right they just said hey we'll give big tech uh banking uh charters here you go here you go here you go and in the u.s we have divided these things we have not allowed mark zuckerberg uh to eat the banks it's like if you remember his uh congressional hearings when he's talking about libra in front of congress it was so telling how little trust there was from from

congress uh being projected to zuckerberg a lot of distrust and so this is part of the reason the u.s has not allowed big tech to eat its banks and as you said richard for the good or the bad because one interesting byproduct in china is oh my god alipay wechat these companies are absolutely massive and they have like uh not only your full social graph data but they also have your full financial history data and this is not something that um the west is uh has been comfortable with to date but this is a key reason i think that the west has kind of fallen behind is they have not this is why i'm still writing checks right like the beginning of the

conversations because we have the u.s regulators have not allowed technology into the banking system they're just leaving it analog and they're keeping the status quo oh look absolutely let me let me throw gasoline on the fire um the u.s banking system is complacent and has been allowed to become complacent because of regulatory protection which has essentially shielded it from the digital revolution that's happening everywhere else and i would like you to imagine the following in 2014 when the pboc granted banking licenses to the

four big digital players in china they did so knowing that it would impact and take away revenue from state-owned banks i i challenge you to imagine the day when the federal reserve and the banking regulators in the west would say well we're going to allow some form of digital neo or other bank and that decision would be at the expense of incumbent banks in the united states can you imagine that i can't i mean really so yeah it's you know it's it is a big deal

and the banking business has been fundamentally protected from going digital and it was allowed to basically look it was pushed by fintechs and other to become digital but on its own power or under if it had its own wishes it would go back to banking in 1985 and have you write more checks i mean anything that slows the speed of money allows it to remain in the hands of the banks longer anything that you know gives them greater control over your um your funds so look one last one last thing about this

control over your funds look i get it and you're right alipay and wechat have a tremendous amount of data on me that's a negative for anybody who basically says oh well you know i don't want to give data i prefer cash i want nobody to know what where my money is going i agree wechat and alipay are not for you because yeah they have a data stream on the other hand what i get out of this is hypermobility of my money meaning that i can put my money wherever i want whenever i want 24 7. i don't wait for anybody it goes into an investment it goes to the landlord it goes where my money is

at my beck and call to go wherever i want it to go and that is mind-blowing you don't have that you don't live in that world right now because you're still writing checks and that is a better world and if it means giving up now this is my personal decision not really a decision because i don't have any choice i live in china it it is a reasonable trade to give my data to alipay and wechat for that immediacy and that convenience of instant payment but now in a central bank digital currency world i won't have to make that trade-off so i'm leading to the next to the segway richard we have a section uh later in

the podcast to talk about this but i kind of want to just introduce it here the decision for the chinese chinese government to give these banking licenses out to the tech gargantuans at their own loss right at their to their own negative uh benefit um would you say that that was a decision in order f uh for them to bring the power of big tech under the control of the state as in if they have the banking licenses if all the big tech apps have banking licenses that they are now closer to the central authority of the chinese government and the chinese government can uh tap into the power that they have would you say that that was a strategic decision by the the central power of china no not in the least so look the decision

the decision in 2014 to open up banking licenses was really done as a means of reducing the unbanked population you know the con look there's 1.4 billion people in china many of them live in rural environments and these rural environments simply don't have access to banking services so by opening up uh the banking system to big tech they could use digital to bring these people into the into the banking system now what you see happening now however is so okay that's 2014.

we're now 2021 and we're living in this world where basically everybody's watching china's regulators come come after big tech so what happened was that while they were smaller players in 2014 they are now too big to fail banks right well that's the 2008 you know terminology these banks are too big to fail well that's what we chat pay and alipay are now to china they're too big to fail they're so big and they're so massive that china has been re-examining what was basically a seven-year run of low

regulation basically saying look you guys have so much money now you are bigger than some of our banks largest banks and you need to have regulation which isn't all a bad thing but it's certainly done in typical chinese fashion it's done quickly decisively and it shocks the living daylights out of everybody but um it's not the end of the world and it's not necessarily a bad thing for um for digital fintech in china okay richard so so guys this has been this has been sort of the the first phase uh digital we'll call it digital currency 1.0 in china that we've talked about and allow me maybe to just

summarize very quickly but um digital currency 1.0 in china gave mobile access to banking basically every citizen or a much more expansive group of citizens in china how did it do it via the tech giants they allowed big tech to eat the banking system now the banks still exist they just are exist in a more diminished fashion than they they might otherwise and what this led to so far is better cheaper upgraded digital banking kind of a leap frogging of the uh the banking services that we have in the west at least in in some key areas hey guys i hope you're enjoying the conversation with richard turned thus far in the second half of

the show we get into the actual cbdc version of this story and we talk about the actual way that the chinese bank digital currency is actually constructed fun fact they have smart contracts coming down the line in 2024-ish and i thought that part was an interesting thing to dive into we go into the ways that this can benefit the the people of china as well as still enable the business layer the commercial banking layer of china as well and then we turn to china's geopolitical ambitions and how these chinese cbdc may help actually try to establish dominance in the east as a currency richard was a fantastic guest on this podcast i hope you're enjoying the second half of the

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seems to be the next area that china is is kind of innovating so lead us into that now richard i want to set some context because i think a lot of our listeners in the crypto industry um have heard that china's been pursuing a central bank digital currency for years like i remember this and like hearing reports in like 2016 2017 right um we've seen some pilots it seems serious we've also heard uh our western governments too talking about like oh we're doing a pilot it's a central bank digital currency like we're doing this and like every so often the fed comes out it seems like every three months every six months somebody in the fed says hey maybe we should do the central bank digital currency thing like maybe so i think there's um when we hear central

bank digital currency right like we're not sure how serious uh governments are about it let me ask you how serious is china about a central bank digital currency oh they're they're deadly serious okay so where are we going in 2014 when the central bank allowed wechat and alipay to get licensed for digital currency it also started a project of its own and this is a direct result of crypto so here's the here's really the interesting thing china is not just digitally

sophisticated with regard to fintech china loves digital with 1.4 billion people china going back to 2000 in the 2005 the early the earl into the the to the zero zero post 2000 world china realized that digital was how it could bring services to 1.4 billion people they were they were onto it so when they saw what cryptocurrency was doing the us basically ignored it said okay it's 2014. nobody really cared about crypto okay but it did not yet run up to 20k right bitcoin so the u.s basically ignored cryptocurrency

and said there's nothing here we don't give a damn china on the other hand said hey there's technology here there's something going on we want to learn from this is interesting so in 2014 before wechat and alipay became huge sensations the pboc started its digital currency project so why do i give that historical fact many people say okay the central bank digital currency is designed to eliminate wechat and alipay not true the central bank digital

currency project started in conjunction the same year that they did so pboc has been investigating digital currencies since 2014 with the goal of understanding how to make digital payment part of a central bank function central bank's function now is to issue cash money pieces of paper how do they take than what they called the next evolutionary step to transform this paper into a digitally a digital piece of paper that is offered by the central bank

so central bank digital currency backed issued by people's bank of china cryptocurrency digital currency related in technology but supported by faith and that's okay i'm not going down that road but it's supported by faith the other is supported by the central bank and the people's bank of china has been working on this until 2021 when they started the first or 2020 when in september they started the first trials in the city of shenzhen where they released some central bank digital currency

into the market to test it to see how it works and they've been trialing it in cities ever since and they have half a dozen cities that are trialing it and in each city they try something new so if you're going to digitize money you have to make it so that it's integrated into society it means that the electric company has to take it the subway has to take it a online retailer has to take it old people have to be able to use it who don't have cell phones there's all these it's not like bitcoin where you send it out there and you say okay if you're

digitally sophisticated you can use this go have fun right we can we can toss out a new currency overnight cryptocurrency we can do overnight but if you're going to do a central bank digital currency they've been working on on it for seven years and they have all kinds of new gadgets little cards for using it that are thumbprint controlled and allow you to use nfc to transfer currency without having a cell phone you can you have the ability to transfer central bank digital currency from phone to phone without having a signal so there are all these things and inventions that you need to support a central bank digital

currency because everybody's got to use it so china is deadly serious about launching its central bank digital currency it will be launched probably 2022 um i would say second quarter not with the olympics they're they're going to trial it with the 2022 olympics in beijing people foreigners will have access to it but the actual launch will probably come sometime thereafter but remember it's all about building it into society so everyone can use it and china is deadly serious about making sure that when it does launch everybody can use it and it'll be the

equivalent of cash access to everyone that's super interesting i just want to underline that point you made that like in 2014 while the us was ignoring cryptocurrency china was like hey this blockchain thing could be a big deal and digital currency could be a big deal and they were building which is super interesting uh and that's a that's a very direct contrast i want to just ask the definitional question for for people who still aren't quite getting the difference between the digital cache you might have or the digital rmb that you might have in something like wechat versus what we're talking about here

which is a central bank digital currency now here's how i would sort of describe it right so the central bank digital currency that we're talking about in this second phase is a direct um liability of china's central bank so it's it's a bearer asset it's it's the m0 base money it's similar to cash let's say in the us that the u.s might might print essentially whereas digital currency on something like wechat or alipay is still kind of it's not m0 it's still kind of an iou in the banking system it's like maybe an m1 or an m2 or something to that effect is that what the difference here is

and if that is the difference you know jerome powell says he's still not convinced we really need this thing because we've kind of already digitized so what are the benefits of a central bank digital currency help us with that richard sure um let's dive into this i want to make a blanket statement first and so we just beat it around we got just touched on the edges of this central bank digital currencies owe their existence to cryptocurrency so i know that there are a lot of people that hate cryptocurrency well you know something you can hate them all day long but you owe them this you owe the entire concept of central

bank digital currencies to the innovators dreamers people that were roundly mocked for loving bitcoin for loving ethereum the technology that was developed and proven to work for crypto is what is underlying every central bank digital currency out there right now so hats off to the guys for crypto and that doesn't mean that i love them all for their various different reasons but i love that they took the technology and ran with it and proved to the planet that it would work so that it could underline a central bank digital currency and we offer hats off to them

all so now what's the difference between wechat on my phone and for anybody who's watching the video version like you can see you can see me opening the wechat app um so you know i've got wechat open on my phone right now and i've got the money green qr code showing what is this this is wechat money it is an account based monetary system so basically we chat in its simplest form i'm not going to get real deep wechat in its simplest form takes money out of a bank account so when i look at money on my phone

i'm sh ah the money is not on the phone right the money is in an account somewhere and when i transfer money with wechat i'm transferring fiat currency from one account to another okay so everything that happened so ready the money is not on my phone i have a digital wallet the digital wallet shows me an account balance it is not a digital wallet in the sense of a bitcoin or a cryptocurrency digital wallet okay so money is in accounts money transferred from

account to account using third-party system of wechat or alipay as the means of transferring that money next step central bank digital currency so central bank digital currency like bitcoin like any of the cryptos it is a digital representation of money so when i have a digital wallet on my phone with central bank digital currency in it it is fair to say the money is on the phone meaning that the long digital string that is a representation of paper money

resides on that digital wallet and resides on my phone it is in the stored in the memory so wechat an olliepay account based money money transferring from one account to another using my phone central bank digital currency is in china is a tokenized form of money where i have a digital wallet like bitcoin like cryptocurrency where the tokenized version of money is actually resident on that digital vice digital device and held within the memory and here's the most important thing

i can transfer money from party to party without the use of third-party services so ready wait for it here's the disruptive car that the fed really goes nuts over for me to transfer money from me to you i don't need visa i don't need mastercard i don't need a bank i do not need a third party entity to transfer the money on my behalf i just send the money from me to you digitally and anybody who works in crypto is like yeah man that's why we love this that's why we've

been using it for years what you guys are just figuring this out and it's like yeah well it's not a matter of the people are just figuring it out it's just that basically it's something that is highly disruptive to the financial system in the west and in china too and it's a facility that the fed is uncomfortable handing out because it means a fundamental change in the banking system and a releasing of power from the banks from this visa and

mastercard from these third-party entities and it empowers people and that scares the living daylights beca out of out of the fed and out of the banking system because it's a fundamental change in perspective um that change is coming quickly in china within as i said 2022 it's going to come here and it's coming after years of research the research is just starting in the fed now how they're going to do it in the u.s and in the eu is unknown i give the eu a lot of credit because they're far they're far further down the road than

the fed is and they've made a commitment to uh central bank digital currencies while the fed has not yeah it's interesting because the fed has been so reticent to like uh allow the disruption of its banking uh sector right it seems very reticent to touch anything so to fundamentally change things in the way central bank digital currency uh does it's kind of like seems like a bridge too far unless there are benefits on the other side of this richard and before we get into the design of that that china is selected for its central bank digital currency which which we want to do i want to just touch on the benefits right so like why is a central bank digital currency beneficial

uh to to a nation state maybe to the citizens of that nation um i'll throw a few out here that you you uh mentioned in your book and i want you to maybe like just grab one or two of these as the most important you want to highlight uh you talked about improved tax collection aml enforcement folks in crypto will not be excited about that but that is one potential benefit financial inclusion we've talked about that um auto auto being able to like helicopter stimulus checks which is some somewhat interesting right getting that digitally is is maybe a benefit um monetary policy so the ability to kind of calibrate maybe maybe have negative interest rates uh on on your uh unit of account is is i

guess somewhat interesting if you're a central bank of course folks encrypted do not love that either you also mentioned as a cryptocurrency deterrent which was really fascinating i'm wondering if you could just highlight one or two of the benefit the biggest benefits you see of why china is doing this right now sure a hundred years from now the greatest legacy of central bank digital inclusion or digital of central bank digital currencies will be their benefits to financial inclusion so go sometime in the future look back so the fed you say well the fed doesn't know whether it wants to issue a central bank digital currency according to the fed's own statistics

22 of american adults that's 63 million people are either unbanked or underbanked um 16 of these are classified as underbanked meaning that they rely on payday loans check cashing or money orders which is a tax on our most vulnerable populations that cbdc's central bank digital currencies will likely eliminate now the fads still can't think of a good reason why it needs to issue a cbdc after we just had a pandemic where it's issuing

paper checks and plastic cards and direct deposit to their credit to the entire american population and the stories of people going to check cashing and or other places with their checks are real but still the fed says we don't know why we would do it there's no benefit we can't see the benefit ask these 63 million people if there would be a benefit to them if they had a digital currency that gave them immediate access to banking services of some basic form and to a digital digital transfer of money i think it would help them now

does that mean it's going to miraculously solve all problems no i get it there are people who have difficulties that are beyond you know central bank digital currency to solve i get that but for this population for the unbanked it will do miracles you say well where's the evidence of this go to small villages in china go to the villages where before 2014 people had to basically take their money and put it in the mattress and go to them today where they have access to wechat and alipay which allows them to digitally store and spend money and basically

invest money if they have a little savings they can get the higher interest rates on it i don't mean buying stocks but they can also start up businesses and conduct business online so you say small villages in china one of the things that accompanied digitization of the financial system in china was digitization of ready and this is the funny part digitization of logistics getting stuff from point a to point b so once people had money to spend in small villages or once small villages had the ability to sell stuff it

increased their standard of living and that was fundamentally a good thing so if you say well i don't believe this there's no evidence that digital banking digital services help the poor go to china go look at the ample reports of what digital services have done to improve the lifestyles of those who live in the smallest villages here in china it's not eliminated poverty but in total but actually china launched a big campaign announcing that it had launched it had eliminated the lowest form of poverty in china this happened this spri this spring

and uh much of that is uh attributable to not all a lot of it is attributable to roads and other stuff infrastructure but part of it is attributable to um the ability of people to have online services so number one for central bank digital currency is financial inclusion no question about it everything else comes um secondary to that but let's touch on the other things look kycaml well richard actually before you move on i'd like to add in a comment here because coming from the cr crypto perspective this is actually like an incredibly like sobering line of conversation that uh china saw

the merits of crypto in in 2014 and actually executed on this whole blockchain not bitcoin meme that started around that time in 2014 and one of the fundamental like ethos or goals of this of the cryptocurrency industry is to uh bank the unbanked and have financial inclusion and that's one of the merits of crypto that we try to espouse to the west to the regulators as to why they should use you know crypto rails but the fact that china was able to see the power of blockchain technology and and central bank digital currencies that would be built on on you know the blockchain rails and then also execute on our visions way faster than

we ever could is incredibly powerful and something that i think the listeners should appreciate that china came after our industry and is doing incredible amounts of financial inclusion as a result of this technology before the crypto industry ever could that's powerful to me look absolutely let's just make sure we get the timeline right no question it was wechat and alipay in 2014 who spearheaded the effort private companies are not government related they started it the government when they really took off the government was already building a central bank digital currency exploring with the technology and now

having had this tremendous success the government is doubling down and saying look if it worked that well let's take it to the next level and yeah china look the premise of my book is that the west can fundamentally learn from china and i wrote it because i was scared when i went back to the u.s and eu both places italy where i both have homes i was shocked at how the discussion is not in the right place nobody's even talking about this stuff meanwhile china is taking it to this second tier the second of generation and yeah

i know that people have various ways of thinking about china which are not always so kind and i understand that china is in the news for being politically um incorrect at certain areas or at least accused of it how whatever you cannot ignore some of the good things that are coming out of china and the fintech central bank digital currency and the use of digital payment is something that china can rightly be proud of and that something that we should be watching and learning from no question about it and yes it kicked off um with alipay and wechat and to a certain degree the technology underneath it all not underneath wechat

and ipad which is not blockchain but the underlying technology for the central bank digital currency is blockchain related technically it's not you know it's not a blockchain but that we can leave that for another day yeah it's uh super interesting richard we've got so much to cover i i know we could go back and talk about the other benefits but i'd encourage listeners to like check out your book and and which goes into detail on the other central bank uh digital currency benefits at least to the central bank side i want to just touch on the design of this thing because we've we've uh pushed around the edges of it and i think people are starting to flesh out what this is it's token based it's not account based you also mentioned it's it's not actually

disrupting the bank so it's a two-tier system so the banks in china will uh will be involved in this i'm wondering if you could give us a few highlights in the design i'm going to throw a few more things out there and you just pick one or two to jump on that you think are most interesting it it is not blockchain tech but it's blockchain inspired the china central bank digital currency uses a utxo model which is somewhat interesting but of course unlike bitcoin or ethereum they don't have to worry about 51 attacks why because it's centralized of course don't worry about that you also mentioned earlier it's going to have the the ability to do asynchronous transactions which means if you're offline no big deal right yeah you could still make a transaction um there's also the

notion of of wallets where you keep your private key and and this was super interesting to me uh you had a section in your book that the um chinese government was considering incorporating smart contracts into its central bank digital currency uh it's a little bit worried about it because of course there's lots of issues with smart contracts but again learning from the success of ethereum thinking about incorporating smart contracts into the design if not in phase one in future phases give us some of the highlights of the design of this thing let's let's let's take it from uh scratch okay it is a two-tier central bank digital currency which as you say proverb preserves the

role of banks right now cash central bank prints cash they give it to commercial banks commercial banks distribute it through cash machines right okay same thing digital currency printed by the dis minted by the uh central bank given to commercial banks commercial banks retain their accounts you have an account with the commercial bank and you get digital currency now that's the two-tier system which preserves the role of banks in society okay it is tokenized meaning it is a non-account based system although it can rightly be called hybrid in the sense

that yes you do not really when you spend money right you actually don't spend money from your account you spend tokens which are on your wallet the tokens go for verification as to their validity not as to whether you have money in your account so that's critical all right now that's the utxo model correct that's the utah that's the utxo model and that's critical why it allows for asynchronous transfer of money which meaning that it means that you can be on the net or not on the net so i can take two cell phones

put them next to one another with no signal and they can use nfc and the security protocols based on the phone to transfer low value cbdc from one phone to the other very important if you're living in mountainous and far off regions of china where there is no signal some places um but that's so and so the concept of utxo is very important because it allows for this phone to then go online and once it goes line it says oh i did a bunch of transactions and it sends the it sends the transactions for verification okay also important because it allows for

vast parallel processing which is with 1.4 billion users critical so you say why no blockchain very simple alipay network during the peak they would what's called singles day one one 1111 one right that's singles day the alipay network processed five hundred thousand transactions per second compare so five hundred thousand transactions per second how big is that well the visa mastercard network is rated depending on who you talk to between 50 and 70 000 transactions per second bitcoin network seven transactions per second 10

somewhere in there ethereum maybe a thousand ethereum 2.0 rumored to go around a couple hundred thousand we don't know yet but china's really big i'm sorry i love bit i love blockchain but it's not going to handle the needs of 1.4 billion people um maybe somebody says lightning or the new protocols that's great but remember we're dealing with the central bank they're not on the bleeding edge of technology they want stuff that's proven to work okay that's just central bank and remember they've been researching this for years so today's latest is was not around and when they were doing this in 2016-17 whatever 18 when they were doing a lot of design work so

utxo two-tier tokeni tokenized money asynchronous uh transfer meaning that you may or may not be uh connected to a network the ability to basically have no bank account so up to a certain amount i don't we don't know the amount right yet just yet but up to some couple thousand dollars maybe 10 000 whatever rmb you can use the um central bank digital currency without having an account in the bank meaning you just have your little device okay now the little

devices they're coming out with for the elderly are a little credit card style device but it's an ic card it's got built-in thumbprint reader and maybe it's got some of the different versions have like a security code you put in your number and then you hold it to a little reader and nfc takes over and away you go so you don't need to have a um a an account to basically use this and you don't need to have a smartphone to use this and you don't need to have signal to use this so that's some of the basic designs um and the big thing that people need to understand is this is tokenized not account based i will say that for large

sums of money yes you need a bank account to use it but remember as soon as you go into digital um see as soon as you convert fiat money from the bank to digital currency it's in sort of a different separate world um and then you basically accumulate spent you spend the cbdc acquire cbdc and when you acquire some of it you push it back to the bank and it becomes fiat money again quick one central bank digital currency oh you may have a bank run you're not going to have bank run it's basically like a credit card in the senate you sense that you have limits to the amount that you can

spend limit to the amount if you have millions and millions of rmb in the bank you're not going to convert millions of rmb to central bank digital currency so you avoid or eliminate the bank not going to happen there's there's limits to how much you can use smart contracts are built in are going to be very very powerful there are two forms of intelligence built into central bank digital currency one has already been shown and used that is big data in other words right now if you're on netflix you can't use netflix in whatever country because it's location limited that's big data it says where's your ip address right same thing with

central bank digital currency it has big data built in which means there's certain things you can and can't do with it but it's based on the big data system very very powerful form of intelligence not to be taken lightly the next one is smart contracts which is not for use when rollout they got enough on their plate rolling it out without using smart contracts eventually it will be ping on insurance company just issued a policy that could be bought with central bank digital currency and in their write-up they say hey this is the first of its kind at least you can buy it with cbdc but eventually we're going to have the policy in cbc the claims payment in cbdc everything will be in

cbdc and you're going to have a digital insurance contract that's coming that's going to be three four years away still but it's part of the modernization of money and guess what guys who do we all who do we owe this all to and here's the funny thing traditional bankers like me are loathe they they it makes them boil ready we owe it all to the guys who are in crypto for designing this crap because we're we're using it now in the central banks so i i tip my hat i acknowledge the debt to the guys in crypto who came up with all this stuff and now it's being used by central banks and i know crypto fans are

like look we don't want kyc we don't want aml i get that but be at least proud that your creations are being adopted by central banks in china and probably and in all across the world right now and that's a good thing richard some the the more cynical among us would say it's been co-opted by the central banks and and this is a discussion for a little bit later but uh so richard you mentioned uh aml kyc i understand that there is uh you mentioned three centers in in the book kind of these central processing centers i want to just touch upon one which is the verification center so there's some notion that every transaction the central bank digital currency will require verification aml kyc is kind of tied to

your mobile phone right so think like facial recognition um in order to like you know send the currency that's sort of the impression i got in reading the section can you talk about the verification that is baked into this central bank digital currency sure not unique to china when central banks talk about digital currencies they of course want aml and kyc built in they want to know who's using it all right so in china your phone is going to have the very minimum all look all phones are registered two people in china burner phones not a thing here okay so you have a phone that phone is registered to a person you have an app that app will be your digital wallet

contained usually by a bank or contained by a wechat or alipay those apps have security usually facial recognition and or passwords or whatever to open them up so you have these different walls of security so now you're spending a digital currency you're spending a token from your phone to another phone okay let's just say that you're online right now because we know that these tokens can be transferred offline as well with lower degrees of security but if you have a direct transfer with both phones online that transfer is event is sent

goes through the security on both phones is accepted and is then sent for verification to what is called the verification center and what the verification center is it checks the hashes it's really right out of you know crypto it just checks that the hash strings are correct and valid using the different uh the the the public and private keys that are sent with it um and that's it it's not checking an account that's the key thing for people to get phone to phone transfer checks the cr of money of tokens from one to the other is like bitcoin it checks the validity of the string

[Music] not that there is an account okay so that's what the verification center does now the verification center does not know who you are they do not have the data to link you with your phone they have your keys they have a whole string of zeros and ones but they fundamentally do not know who you are there are two other processing centers the big data center which says okay that's where they're going to look for anti-money laundering and stuff they don't have your data they don't know who you are if they

suspect money laundering with an account they can produce the evidence that says we suspect money laundering and then they can go to the police who have control or another segment i don't want to say the police but they they have a process which they by which they will then go to the kyc center which is a different group of people and say these people we think today we did money laundering we want to connect the data we have with the people so the concept that um uh china's central bank digital currency is this big vacuum cleaner for data and has no control over who sees it and what

sees it is fundamentally wrong and without question the privacy afforded users on central bank digital currency is greater than that provided by the wechat and alipay platforms currently in use so it's relative to china it is providing a higher level of privacy and a higher level of data protection than wechat and alipay and that's that's undisputed now is it up to standards is china's design up to standards for the us well every country is going to look at building its own central bank digital

currency and every country is going to have to tackle the privacy and anonymity problems and they will all come up with different solutions but the one that's furthest along is sweden sweden's looking at building a central bank digital currency and even sweden who also segregates user data in from uh to from from uh they segregate who's using it from what is being spent it's not actually a token-based system even they say in cases where we suspect criminality we're going to have the right to go

and figure out exactly who's using the currency so um digital currencies um are tremendously powerful they will be built according to the privacy and anonymity specifications of each individual country china's are better than what is being commonly reported and it is better for china users in the the cbdc is better for users in china for both anonymity and privacy than the existing uh payment apps that are available richard so far we've talked about um china's cbdc from a domestic you know a chinese

domestic perspective and i think like many in the west find that sort of easy to ignore okay trying to you know do your domestic thing we'll do our domestic thing is maybe the the idea um but let's talk about china's international ambitions with uh the cdbc so do they plan does china plan to export the cdbc internationally and let me just ask this because we don't have a lot of time remaining and i want to get to the crux of things um does this cdbc the chinese cbdc mean the death of the dollar is this kind of a a threat to the dollar's monetary uh reserve currency status in the world what do you thought

yes but not in the way that you think okay so i'm going to make this real short and real super clear for everybody all right the central bank digital currency will eventually be used in international markets it is clear there is no doubt about that it was mentioned in the recent white paper by the boc and there is a hong kong monetary authority pboc research platform for a interoperability uh system that's based between united arab emirates and the thai central bank so they're looking at no question so i still have people saying well we're not

sure look that's done we're sure it's going international now what will not happen china will not launch its central bank digital currency and like bitcoin it is suddenly available to all it doesn't work like that this is central bank so every country that intends to use china's central bank digital currency for buying stuff will have to be approved they'll have to do an agreement between china central bank and whatever central bank so it's going to be a rolled out country by country with kyc with aml in those countries and it'll be a very slow roll out first to

belt and road countries there china has what's called the belt and road initiative these are developing countries that are doing a lot of business with china they will be the first users the second users will be also and there's some overlap here regional comprehensive economic partnership rcep which is a pacific area economic partnership area that all have a deal with china to promote their respective economies those will be the users and it is a long term project the central bank digital currency isn't going to get launched and isn't suddenly

going to miraculously take over for the dollar what's going to happen is it will be a long slow blood dripping where a drop at a time a country a business line something says hey we can save money using central bank digital currency in china to buy stuff rather than using dollars remember many developing countries have to take their currency convert it to dollars then go from dollars to rmb to buy stuff so they've got two currency legs it's costing the money if they can use central bank digital currency to go directly from their currency to digital rmb which is sent over you know in ten minutes or five minutes to

to buy the stuff in china it's gonna be a big win for them okay so yes it is a change in how we use currency it is a threat to the dollar in that it threatens the dollar that is used in trade remember dollar is about stocks are valued in dollars bonds investment that stuff isn't changing but when you look at the dollars that are used in trade to buy stuff that starting at the low level small traders is going to convert for certain

countries into digital rmb and yes in the long term we're looking at five years 10 years out it will reduce china's dependence on the dollar it will not and it is not designed to overtake the dollar so much has reduced china's dependence and over 10 years yeah it's gonna make a dent there's no question about it well let's talk about the impact on crypto next we just talked about the impact uh on on the dollar and uh we lived in a time over the last you know uh three to six months uh china has been kind of cracking down on the crypto industry like perhaps proof of work mining has been out of there you know exchanges are are leaving the

country but what's your thought on the impact of china's uh central bank digital currency on cryptocurrency uh writ large you said in your book there's kind of two two schools of thought like one is the thought that hey everything's going digital so crypto will actually thrive it'll increase in adoption because of this um the other school of thought is that now crypto will die because uh central bank digital currencies will overtake crypto what is your take what's richard's personal take on how this is going to shake out will crypto thrive or will it die with the advent of central bank digital currencies i i predict central bank digital currencies will not impact crypto look there's a lot of reasons

why people like cryptocurrency and those reasons are the direct opposite of why people want central bank digital currencies my vision is that in the future my phone will have a wallet on it i already have wechat and alipay wallets right so that wallet will soon in china have central bank digital currency as an option i can pick how i want to pay for the west you're going to have cryptocurrency and that's likely to be any of the stable coins that are coming on strong right now um cryptos of various forms central bank digital currency someday for the west or

whatever corporate coin you'll pick visa mastercard you'll pick how you want to pay depending on the utility of that payment so central bank digital currency will not kill crypto anybody who believes that is fundamentally missing why people love cryptocurrency with near religious belief and that's fine i completely get that on the other hand anybody saying that crypto is going to kill bitcoin is going to take over central bank digital currency is equally wrong there's no way that central banks are going to give up printing money that's

their job they don't believe that you know they believe fundamentally that it's their job to control currency in the end we're going to arrive at a a peaceful balance where all of these things coexist i will say this the days of crypto without kyc and aml are rapidly coming to a close the gap between central bank digital currency and crypto is closing that concept that you're going to privately anonymously use my coin without anybody knowing are gone and just look to the irs in the united states with project hidden treasure where they're going after all the whales

who are trading crypto and who are they doing what are they doing with it they're using volunteer the big data company to data mine bitcoin's own ip strings to figure out who's doing what so that the gap between crypto and central bank digital currency is closing with aml and kyc requirements last question here richard uh we have so much we could cover and we want to invite you back sometime um to talk more in in more detail there's a lot we could have covered but i want to ask this kind of you know closing question so when the west wakes up and realizes this let's take the us right they've got a lot to lose if uh china's central bank digital

currency picks up steam they've got a lot to lose geopolitically they've got to lose lot to lose as a reserve currency asset what are your thoughts on how they will respond because they have a few options but it feels like the option they're taking right now richard is status quo do nothing let china take the lead ignore cryptocurrency and to me that doesn't seem a sustainable option do you think they'll continue with that option or where do you think they'll go next i don't think they have a choice at this point i think they are going to be forced to look i think we're going to see the following stable coins they're going to figure out how to regulate no question about it they have the u.s has no digital option

stable coins are the only thing that it can uh put to field to give people some form of digital transfer so stable coins they'll figure out how to regulate them and they're going to figure that out within the next six months for sure then you're going to see a central bank digital currency but you can't rush these out i mean look it took china seven years to develop a cbdc the fed with its fed now program was which is a immediate digital transfer system is years behind you know they they they're really bad at building stuff the fed

prefers to let let private sector do stuff and that's to be argued one way or another but they're not gonna beat china they're gonna you know maybe they'll do five years to launch for cbdc so you're gonna have a period of five years where you're gonna have to use stable coins and then maybe five years six years from now you'll see the us issue issue with central bank digital currency but it's going to take a while richard this is great this has been definitely the most thorough case i've ever heard for central bank digital currency and what china is doing with its central bank digital currency we didn't even get an opportunity to pitch you on the bankless vision for things richard so i hope you come back and you can hear kind of the crypto take on it

but this was really for for david and i and the bankless community kind of a listening endeavor to find out as much information as we could and boy you were full of it uh full of great information i mean i should say um thank you so much for there's plenty of people out there who will say i'm full of it i i i who are upset go ahead you know uh anyway rich this has been a pleasure i it seems to me very clear that we've got like two visions at play one is the cashless vision of a central bank digital currency future the second is a bankless vision of a cryptocurrency uh free money future and both of these will intertwine in some way in the future maybe maybe come together so richard we we thank you for uh you know painting

the picture today and for joining us thank you so much it's been a pleasure being here both david orion and my book is available on amazon and as you know it's called cashless china's digital currency revolution and i talk a lot about how crypto contributed to building china's cbdc so thank you so much for having me absolutely guys action items from today's podcast i will plus one that book uh i've got it i've read it's fantastic book pick up a copy of richard's book cashless we'll include a link in the show notes also become a bankless subscriber david and i right after this are getting ready to record our debrief which is kind of our raw

thoughts on the episodes if you are a bankless subscriber bankless premium member you get access to that as well of course risks and disclaimers guys none of this has been financial advice we never talk about financial advice in the bankless podcast crypto is risky ethan's risky we're not sure about the future of central bank digital currencies as always with crypto you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter

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