Standard Chartered and PwC Hong Kong have released a white paper on the potential of Central Bank Digital Currencies ( CBDC ) in the Greater Bay Area including Guangdong-Hong Kong-Macau (GBA) ).
Mr. Anthony Lin, CEO of Standard Chartered GBA said: “The CBDC's potential to create a seamless and innovative digital economy across borders will play an especially important role in the economic landscape in the region. the Great Bay Area (GBA). CBDC will transform the payments industry ecosystem for individuals and businesses across the region and solve many other problems.
The Greater Bay Area has simulated an interesting test case in the context of not one but many different currencies used in many jurisdictions such as Macau using pataca, Hong Kong using US dollar. Hong Kong andChina use the renminbi. According to the report, around 3.8 trillion yuan ($535 billion) of cross-border trade was transacted in the region in 2021.
The successful launch of use cases for CBDCs in the GBA region will provide a foundational framework to support interoperability with other CBDCs in cross-border trade. "Widespread adoption depends on a collective effort among industry participants to enhance the quality of their customer service," the report said.
CBDC boosts supply chain operations
CBDC smart contracts will be applied in the implementation of cross-border trade activities, namely in the supply chain to pay bills and increase the flexibility of currency transactions. It is also possible to assist retailers in creating consistency between loyalty services by using a single multi-currency wallet. Payment service providers can also leverage smart contracts for use in the KYC process.
Usually, when a large buyer wants to get help from a bank to increase their financial budget, they need to achieve certain levels of credit ratings. While this is an extremely effective model, it often fails to reach small businesses, who have the hardest time finding financial aid packages.
The Asian Development Bank found that the trade finance gap widened between 2018 and 2020 to $1.7 trillion, or 10% of global trade .
The CBDC will make it possible for the buyer to pay the supplier with conditions attached, such as terms of delivery. So in this case CBDC is worth more than the promise of cash. Tier 2 providers can then use the CBDC as Collateral asset to get funding from the bank, which then uses it to pay tier 2 providers, who can also use the CBDC as Collateral asset for financing. And so on, the same activity will take place along the supplier chain.
However, an important requirement to keep in mind is the need to standardize smart contract templates for this purpose.
CBDC Serves Rewards Program in Retail
The report also explores a retail use case for payouts. This can be a cost-effective way for retail merchants, helping them implement loyalty programs. There are also advantages in more complex use cases, like conflict resolution between parties.
For example, a shopping mall that offers rewards to different stores, or a store that offers promotions for branded products.
Especially in Hong Kong, CBDC has the potential to serve rewards programs that work across borders, even in a multi-currency wallet. That applies equally to the Greater Bay Area and also to Europe. In addition, Standard Chartered is also participating in trials , focusing on the offline CBDC use case with Giesecke + Devrient.
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