Baosteel, a Chinese steelmaker, has partnered with Australian mining company Rio Tinto on a blockchain technology documentary credit (LC) transaction denominated in Yuan (RMB).
The LC transaction, enabled by Standard Chartered Bank (SCB), is the first paperless cross-border business in the iron ore industry to be closed in China’s fiat currency. While it’s just a drop in the ocean in international trade, the transaction seems to point to China’s plans to question the dominance of the US dollar (USD) on the world stage.
For some analysts, blockchain technology is opening a channel through which the Beijing authorities will try to undermine the dollar’s primacy in international trade.
Historic LC transaction in blockchain with RMB face value
According to a report by the Global Times on Wednesday (May 13, 2020), the SCB closed the deal on the open trade finance platform Contour supported by R3 Corda.
Samuel Mathew, head of documentary film trading at SCB, commented on the success of the transaction as follows:
We are pleased to have played an important role as a digital LC emission bank in such a significant trade that it represents the first international RMB on RMB between two banks via a blockchain.
Contour, formerly known as Voltron, aims to improve the global trade finance market for $ 18 trillion, particularly in the area of letters of credit. SCB and other large banks such as Citi, ING, HSBC and BNP Paribas are investors in the network. At the beginning of May, DBS became the first bank in Singapore to join the Contour Blockchain consortium. [The Strait Times]
Using the blockchain to complete an LC transaction also takes on a deeper meaning in the current global context that goes beyond mere adoption. With the COVID-19 pandemic that is disrupting the supply chain, providing physical documentation has become more problematic.
Against USD hegemony
Although the transaction marks another milestone in the introduction of blockchain in international trade, some experts refer to the news as an example of Beijing’s aggressive attempt to soften the dollar’s dominance in cross-border transactions.
In a tweet on Wednesday, Matthew Graham, CEO of Sino Global Capital said that China sees blockchain as a way to do it Challenge the dominance of the dollar in international trade. In 2019, Chinese President Xi Jinping called for blockchain to become a “core technology” in the country.
Every feasible US challenge In the international financial scene, there will be alternatives to SWIFT – the US-controlled banking communication network. The RMB accounted for only 1.85% of SWIFT’s global payments in April. [Forbes]
With China overtakes the US In economic relations with regions like Africa, Beijing can create transfer corridors between the country and partners in developing countries to enable a similar trade called RMB. [CNBC]
Indeed, projects like DC / EP – China’s proposed central bank digital currency (CBDC) – could play a huge role in such efforts to deprive the US dollar of power.
The consequences of the current COVID-19 pandemic and China’s alleged lack of transparency in the distribution of early warnings of the virus could hamper the overall program of world domination. Even if the United States is forced to invest trillions of dollars in its economy, the dollar could avoid any major competition from the RMB, time will tell in this silent war.
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