The poster child for technical innovation in China is the DCEP, or sovereign digital currency. The DCEP is designed to remove trade settlement and cross border remittances from the group of the US dollar-based SWIFT settlement system. SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a network used by banks around the world to send and receive information about financial transactions.

However, having an alternative transfer system in place removes a significant vulnerability of Chinese trade relations because trade settlement cannot be easily blocked by a US Presidential tweet. Business is beginning to factor in these changes, but this is just the public facing aspect of this process.

The foundation of the DCEP is even more important. If we do not have faith in this foundation, then the DCEP will fail because in the final analysis that it is a fiat currency just like the US dollar. Fiat currencies are those backed by confidence in government and are not backed by gold reserves. To be sure, China has been increasing gold reserves in recent years, but at heart, the DCEP remains another variation of a fiat currency so sound foundations are vital.

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