Martin Chorzempa, a research fellow at the Peterson Institute for International Economics, provided insight into the motivations and objectives underpinning the development of China’s state-backed Blockchain Service Network while speaking at Consensus: Distributed on May 12.
Chorzempa highlighted the domestic goals of China’s blockchain strategy, describing the BSN as a means for China to keep abreast of innovations within the distributed ledger technology sector while restricting the penetration of foreign firms and protecting against capital flight.
China’s strategy design to mitigate "foreign threat"
Chorzempa emphasized that China wants to be “at the cutting edge and know where the interesting innovations are and apply them well, rather than having to respond to innovations that come from elsewhere.”
“China had a negative experience with the first few waves of digital currency, of cryptocurrency and ICOs,” the researcher said, continuing:
“It was perceived as a kind of foreign-imposed, foreign threat that the PBoC, China's central bank, had to figure out quickly how to respond to.”
Chorzempa stated that the People’s Bank of China sought to determine what aspects of the emerging crypto industry offered “positive innovations” and what parts of the sector were purely speculative. The bank also needed to identify potential capital flight risks.
BSN allows China to reclaim control over financial data
“Another element of it is about control of the financial system,” said Chorzemba.
He asserted that:
“Alipay and WeChat Pay are now dominant retail payment providers in China, and it's actually difficult for financial regulators to get access to data from them on payments because of the level of power that these companies have. [...] So, CBDC is one way. If you made the underlying settlement done in [China’s national digital currency], it could potentially allow that central bank to get a lot more access to payment data and also to gain back some power from these companies.”
Geopolitical narrative as a tool for domestic support
Chorzempa depicted the narrative of China seeking to wield its blockchain network to project power internationally as a tool leveraged to gain support for the project among conservative Chinese citizens.
“I think the international geopolitical side of it is a potential domestic selling point in China to maybe some of the more conservative hardliners, but I don't actually yet see a credible reason that a digital renminbi at this point would help it internationalize.”
Chorzempa advanced that the majority of Alipay's and WeChat Pay’s use outside of China occurs within the context of tourism, concluding:
“There is some element of cross-border [transactions] involved, but it's not necessarily going to be able to reach the kind of international scale or cross-border scale that something like Libra could potentially have.”