Dynamic Duo: Renminbi and Rupee

Focus: Dynamic Duo: Renminbi and Rupee (CNY & INR)

In the Markets: China Stamped; Evertanked

MoneyFitt Explains: Not crypto: CBDCs

..... ▷ Like many other countries, China has been taking steps to increase the global use of its currency, the Yuan or renminbi (RMB), as part of its broader economic, financial and geopolitical ambitions. Some of Beijing's goals for the RMB include increasing its use in international trade and investment, promoting its inclusion in global reserve currency baskets, and developing offshore RMB markets. These efforts are aimed at reducing China's reliance on the US dollar and other major currencies and at enhancing the country's influence in the global financial system. Domestically, China has been at the forefront of digital payment technology, with popular platforms such as Alipay and WeChat Pay allowing users to make payments, transfer money and manage their finances using their smartphones. The People's Bank of China is currently testing and developing a digital version of its currency, a central bank digital currency (CBDC), also known as the digital yuan or e-CNY. While it has some potential to challenge the dominance of the US dollar in international trade and finance, strict capital controls limit the ability of individuals and businesses to freely convert the RMB or e-CNY into other currencies, reducing its attractiveness as a global reserve currency.

Hopefully, these ₹500 notes are the new ones

- Image credit: Tenor

..... ▷ India's efforts in CBDC development are even further advanced, with the digital rupee pilot from last year potentially fully launched as soon as next year. The project involves integrating it with the Unified Payments Interface (UPI) system, where merchants can accept digital rupee payments using the same QR code they already have. The UPI payment system allows users to merge multiple bank accounts into a single mobile application, enabling seamless fund routing, merchant payments, and other banking features and is now used by 350mn people (more than the entire population of the USA) with further adoption likely. The UPI system was part of Indian PM Narendra Modi's policies to modernise and reform an archaic and chaotic cash-based financial system rife with fraud, bribery and tax evasion. His abrupt 2016 "demonetisation" move to withdraw high-value notes (₹500 and ₹1,000, then worth about $7.50 and $15) covering 86% of the cash in circulation in a bid to shrink the informal economy and increase its tax take was disruptive but ultimately effective, coming alongside UPI and the development of a voluntary biometric universal digital identity system (Aadhaar) that now covers 99% of India's adults.

..... ▷ The initial reaction from investors, though, was negative. The stock market fell by 6% in the days following the announcement, and foreign investors pulled out billions of dollars from the Indian economy, with fears over the economic impact as businesses and consumers were unable to access cash and about political stability from social unrest or even a political crisis. But investors (not for the first time) were largely wrong: the Indian economy has continued to grow, and foreign investment has returned. The initiatives boosted tax collection (up 19% within two years), direct payments and financial inclusion. As a result of these positive developments, the attitude of international investors towards India has become more positive, recently even more so given the travails of China's increasingly troubled economy.

The PM is pleased

- Image credit: Tenor

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