THE DIGITAL CURRENCY BATTLEGROUND - Why it's time for ASEAN to re(act) to China's Central Bank Digital Currency - Oliver Wyman
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THE DIGITAL CURRENCY BATTLEGROUND Why it’s time for ASEAN to re(act) to China’s Central Bank Digital Currency Tek Yew Chia Jason Ekberg Michelle Wiryadi
The Digital Currency Battleground
It’s safe to say that China’s digital currency project is the world’s most advanced of its kind,
and has been setting the pace for other countries.
As we outlined in our recent paper, A New Dawn For Digital Currency, China’s digital yuan
(eCNY) has already conducted successful trial runs in four major Chinese cities, with a
nationwide roll-out planned for the Beijing Winter Olympics next year. eCNY, just like the
paper yuan, will serve as a legal tender issued by the Chinese central bank and is circulated
to the public via commercial banks. Supported by liberalization policy, the currency allows
China to transfer money seamlessly across border, enabling users to avoid going through
dollar-based international payment SWIFT system.
The Asia-Pacific (APAC) region is the growth engine for global wholesale payments revenue
with compound annual growth rate (CAGR) of 11 percent in wholesale payments and cash
management revenue from 2015-2017. China is accelerating the extensive use of eCNY
in Asia and, in doing so, facilitating any cross-border money transfer given cost savings
and efficiencies. This is advancing the country’s effort to internationalize the yuan, which
currently accounts for only 2 percent of the world’s FX reserves.
For example, use of eCNY between Singapore and China could drive estimated savings of
$16-24 BN SGD. This is 3-5 percent of Singapore’s GDP due to fee savings from lower
transaction costs, liquidity savings to real-time treasury, and incremental volumes from
lower fees or more liquidity.1 It is imperative that the Association of Southeast Asian Nations
(ASEAN region), being China’s largest trading partner, react. But the bigger question is
how ASEAN countries can keep up.
Estimated savings driven by use of eCNY between Singapore and
China can lead to $16 – 24 BN SGD, 3-5% of Singapore’s GDP.
Exhibit 1: Factors that drive estimated savings of $16-24 BN SGD due to use of eCNY
between China and Singapore
Fee savings from Liquidity savings to Incremental volumes from
lower transaction costs real-time treasury lower fees or more liquidity
Source: Oliver Wyman analysis
1 Monetary Authority Singapore, Sing Stats, Expert input, Oliver Wyman analysis.
© Oliver Wyman 2The Digital Currency Battleground
As countries are unlikely to cede control over their own national currencies and economies,
most central banks are at least exploring CBDCs. Monetary policy implementation,
financial stability, payment efficiency, and financial inclusion are all catalysts that accelerate
a country’s desire for development of their own CBDC. Given that emerging economies
have less developed banking and payment systems, a report conducted by the Bank for
International Settlement suggests that emerging markets have stronger motivations
for issuing CBDC when compared to more advanced economies.
For ASEAN countries in the early stages of CBDC exploration, the dilemma is whether to
build alone or partner with other central banks. As an IMF analysis explains, “Launching a
CBDC is a multidimensional undertaking that extends beyond the central bank’s normal
information technology project management framework.” 2
Launching a CBDC is a multidimensional undertaking that extends
beyond the central bank’s normal information technology project
management framework.
IMF analysis
Cost associated with developing and operating CBDC includes labor, infrastructure, software,
cyber security, and support costs. Issuing CBDC is a complex national project that will
involve multiple dedicated stakeholders, legal and institution preconditions (e.g. data privacy
protection legislation, strong central bank cyber resilience) and adequately developed
technology infrastructure. For example, the potential cost savings and financial inclusion
benefits could be offset by infrastructure upgrade cost.
As outlined in our recent paper, Central Bank Digital Currencies: Six Policy Mistakes to Avoid,
central banks should avoid committing the following mistakes: siloed decision making,
putting off hard choices about policy objectives, ignoring other policy tools to reach these
objectives, creating “Swiss Army Knife” of digital currencies, downplaying political constrains
and forces, and muddled communications.
Evidently, issuing CBDC is an arduous task and it is no surprise that central banks would
need to evaluate whether the scale of the investment justifies the do-it-yourself endeavor,
or there is value in teaming up with other central banks.
On the other hand, for other ASEAN countries that have kickstarted CBDC initiatives, the
question is whether there is value in collaborating with other central banks. From Singapore’s
Project Ubin, it was clear that a common platform for multi-digital currency settlement is
inherently more efficient than connecting multiple digital currency platforms.
2 See Kiff et al. “IMF Working Paper WP/20/104)” International Monetary Fund at 19 (2020)
© Oliver Wyman 3The Digital Currency Battleground
Exhibit 2: Countries in the ASEAN region exhibit different progress in terms of
CBDC initiative
Frontrunner
Have kickstarted CBDC initiatives
Is there value in collaborating Laggard
with other central banks? Early stages of CBDC
exploration
Cambodia
Is there value in building build
Singapore Countries in the alone or partnering with other
Thailand ASEAN region
central banks?
Brunei Myanmar
Indonesia Philippines
Laos Vietnam
Malaysia
Source: Respective Central Banks
Monetary Authority Singapore (MAS) spokesperson highlighted the importance of
Singapore’s Project Ubin being a great collaborative journey as “MAS and industry leaders
learnt from each other, created new knowledge, and strengthened relationships, and we
created a strong ecosystem that is willing to collaborate to build better together.” 3
MAS and industry leaders learnt from each other, created new
knowledge, and strengthened relationships, and we created
a strong ecosystem that is willing to collaborate to build
better together.
Monetary Authority Singapore (MAS) spokesperson
However, governance and ownership remain the key challenges and it is unlikely that the
world will achieve one common international platform for cross-border payments. Instead,
there is global interest pointing towards the viability of using multiple-CBDC arrangements,
with the hub and spoke model applied regionally as requirements and payment policies are
already similar.
Ultimately, it is important that ASEAN countries adopt a team-up strategy and scale-up
collaboration among its members. A coordinated design effort would create a unique opportunity
for easier cross border transactions and promote the interoperability of digital currencies.
3 Remarks by Ms Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore, at the BIS
Innovation Summit, 25 March 2021.
© Oliver Wyman 4The Digital Currency Battleground
Incorporating cross-country compatibility into early CBDC development stages can help avoid
longer time frames of post-hoc reconciliation exercises. At the same time, teaming out creates
a counter — balance to the scale and influence of China; net there is power in numbers and
scale. Continued discussions, exchanges of domain knowledge and collaboration different
central banks would be necessary.
Spurred by China’s CBDC efforts, ASEAN should consider establishing a region-wide platform
encompassing common global standards and protocols that will enable ASEAN to interface
effectively with other digital currencies.
© Oliver Wyman 5Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. For more information, please contact the marketing department by phone at one of the following locations: Americas EMEA Asia Pacific +1 212 541 8100 +44 20 7333 8333 +65 6510 9700 AUTHOR(S) Tek Yew Chia Jason Ekberg Partner and Head of Singapore Partner, Corporate and Institutional Banking Practice Tekyew.Chia@oliverwyman.com Jason.Ekberg@oliverwyman.com Michelle Wiryadi Associate Michelle.Wiryadi@oliverwyman.com Copyright ©2021 Oliver Wyman All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman. Oliver Wyman – A business of Marsh McLennan www.oliverwyman.com
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