Tag: digitalization

Banking on Blockchain: FinTech and Digitalization Will Play a Significant Role for the Chinese Banking Industry

China’s banking industry for small to medium-sized enterprises (SMEs) will rely on digitization and financial technology to build a “new infrastructure” for the entire industry. 

Highly endorsed by the country’s president, Xi Jinping, blockchain technology has seen a surge in popularity in the past year. Xi pointed out that it is necessary to strengthen the fundamental research of blockchain and to enhance innovation, enabling China to take a leading position in the blockchain field.

With the coronavirus pandemic wreaking havoc on the economy, Beijing is helping Chinese SMEs to recover from the economic trauma. As the risk of a sharp increase in unemployment could pose risks to social stability, the State Council announced that they would grant banks another 500 billion yuan ($71.1 billion) on top of the 300 billion yuan ($42.8 million) in funds released by the government in early February of this year.

Dong Ximiao, a researcher with the National Institution for Finance and Development said:

“It was a timely and important move for the country to innovate capital replenishment tools for small to medium-sized banks.”

China Zheshang Bank was the first bank in the country to use blockchain technology to issue the first asset-backed commercial paper in the Chinese financial market. The asset-backed commercial paper (ABCP) was issued as a part of the National Association of Financial Market Institutional Investors’ (NAFMII) pilot project. ABCPs are short-term investments issued by financial institutions to support companies in their short-term goals.

The ABCP used an innovative design that combined blockchain technology with asset securitization to provide a “greater number of upstream and downstream SMEs with a direct channel to markets,” according to China Zheshang Bank. This design would further increase the accessibility of business financing. 

Focusing on new infrastructure, Dong argued that the history of banking history, to a certain extent, is a history of technological development. According to Dong, the first time that FinTech was mentioned in a nationwide announcement, was when the Financial Stability Board in China released the analysis framework report on FinTech in March 2016. 

Dong also emphasized the importance of digitization, based on financial technology, would be the “new infrastructure” for the banking industry. Emerging technologies, including China’s five key technologies, also known as “ABCDT,” include artificial intelligence (AI), blockchain, cloud computing, big data, and the internet of things (IoT) has had a profound impact on the banking industry. 

IMF Emphasizes Digitalization in Financial Inclusion Agenda

IMF Managing Director Kristalina Georgieva highlighted the role of digitalization in enhancing financial inclusion during a recent conference held in Marrakesh, Morocco. While advocating for comprehensive national strategies for financial inclusion, Georgieva also warned about the risks associated with digital financial services. This comes at a time when the IMF is actively involved in exploring cryptographic concepts and has recently presented a crypto-risk assessment matrix.

Speaking at the conference organized by the International Monetary Fund (IMF) focused on financial inclusion, Georgieva underscored the significance of digital tools in making financial services more accessible. “Digital is what moves help to people, investment, and the ability for the economy to accelerate,” she stated. She referred to digital currency transfers in Togo as an example, which were implemented during the COVID-19 pandemic to facilitate financial assistance.

While championing the role of digitalization, Georgieva also issued a word of caution. She stressed the need for regulatory frameworks to manage the risks associated with digital financial services, especially regarding financial stability. Her comments align with the IMF’s broader agenda, which includes rigorous scrutiny of cryptographic technologies that underpin digital assets.

The IMF is not a newcomer to the digital finance realm. On September 29th, the institution presented a crypto-risk assessment matrix, known as C-RAM, aimed at helping governments identify potential risks in digital asset operations. Moreover, in October, a “Synthesis paper” co-developed by the Bank for International Settlements (BIS) and the IMF received unanimous approval from the G20 Finance Ministers and Central Bank Governors, advocating for comprehensive regulation of cryptocurrencies rather than an outright ban.

As economies recover from the COVID-19 pandemic, the IMF is emphasizing the importance of digitalization, urging governments to focus on a future that is green, inclusive, and digitally advanced. The organization advocates for investments in green infrastructure, social assistance programs, and digitalization to foster equitable and sustainable recovery. The IMF is intensifying its policy advice on social protection and taxation, and has also launched a Climate Change Indicators Dashboard. On the digital front, it is exploring the macro-financial implications of digital currencies and the role of digitalization in financial inclusion. The IMF aims to help countries balance opportunities and risks in these key areas for a resilient recovery.

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