From QQ Girls to CFIUS Reviews. In this episode Rasheed is joined by Martin Chorzempa, a Senior Fellow at the Peterson Institute, to discuss Martin's book The Cashless Revolution about China's reinvention of money and the future of America's dominant role in the global financial technology industry.
Martin on X (formerly Twitter): @ChorzempaMartin
Rasheed on X: @rasheedguo
Visit our Substack at cpsi.media
From QQ Girls to CFIUS Reviews. In this episode Rasheed is joined by Martin Chorzempa, a Senior Fellow at the Peterson Institute, to discuss Martin's book The Cashless Revolution about China's reinvention of money and the future of America's dominant role in the global financial technology industry.
Martin on X (formerly Twitter): @ChorzempaMartin
Rasheed on X: @rasheedguo
Visit our Substack at cpsi.media
The most overrated aspect of Chinese financial innovation is the ECLY. What's your take on that?
Speaker 2:100% agree.
Speaker 1:Hi everyone. Welcome back to Caribbean Progress with me, rashid Griffiths. In this episode, I am joined by Martin Shorsimpa. Martin is a senior fellow at the Peterson Institute and has written a fantastic book called the Cashless Revolution about China's reinvention of money and the end of America's domination of finance and technology, and this will be the central focus of our discussion today, martin, what does QQ Girls tell us about the Chinese financial repression in early 2000?
Speaker 2:That's a great way to start, actually, and a story that's been largely forgotten. When Chinese internet companies were really small, they couldn't do what US internet companies could do, which is just start using billing people through credit cards, because Chinese people did not have credit cards and the debit cards they had didn't really have a payment system. So the tech companies looked at that and said we're going to die if we can't charge our customers for providing services and the banks aren't going to do it for us. So they took up their own initiative and created their own payment systems.
Speaker 2:In Tencent's case, that's the Chinese largest social media and gaming company they created this Qcoin virtual currency, and it was so useful to not only people who wanted to buy things from Tencent, but also people who wanted to buy things from other places online, that it became this kind of parallel currency to the Remin B, and people started trading it for everything, and even these QQ Girls, as it was called, would do racy chats with people in exchange for Qcoins, and it ended up being deemed by the government as a threat to social order, but it still took them many years to put a ban on it. So it tells you just about how much thriving innovation and also some dark sides. Potentially to innovation can happen in finance in China, especially early 2000s.
Speaker 1:And how did the government actually go about to squash the popularity of QQ coins at a time?
Speaker 2:They started off by turning it more into a gift card than a virtual currency. A gift card, you buy it. I guess you could try to take cash to give someone that card or exchange for a discount or something, but you can only really use it for services where you bought the gift card. They tried to do that, but that actually cut down on the supply of QQ coins and raised the price even further and ended up backfiring.
Speaker 2:And then in the end they had to keep rationing up measures to finally stop it from being this scary alternative currency.
Speaker 1:So coming to this is it's in 2009, going forward a bit now. You have made reference to a surprisingly free, market-oriented speech by Wenjiao Bao around 2012, when he essentially went out to say that all the banks are too monopolistic, got essentially cut up on that. How exactly was it politically feasible for him to make that speech, even at his high office?
Speaker 2:In China, there are always multiple constituencies this is something that gets lost in the discussion about it being very monolithic, and especially around the late 2010s, there was a lot of change going on in China. You had the rise of internet companies, you had tons of small businesses being created, and so there were a lot of people, including the high officials, who wanted to get economic growth in their jurisdiction and get promoted and show that they could be successful at developing and modernizing the economy, who recognized that funding everything through big state banks wasn't really working. There was enough of a constituency to push against the powerful, entrenched state-owned banks and their shareholders, say, in the Ministry of Finance. That would have allowed it to be politically feasible to make a speech saying we actually need some competition that will give you, as small businesses, or even medium-sized and larger businesses, more choice for financial services and a way to improve and make that better.
Speaker 1:And how was that received, when this kind of happened, from Wenzhou Bao? Was it oh, that's something like a triumphant market, or was it lost capitalism happening in Chinese at the right time? Are we tech companies quite happy about it? What was the context?
Speaker 2:I think the reaction to this speech was very positive and this was a very positive time actually in China, even from the end of that administration to the Xi Jinping administration. People who aren't China watchers might not know that there was a document that came out soon after Xi Jinping took power which said for the first time that the market would play the decisive role in resource allocation, and people took this, plus a visit by Xi Jinping to Tencent at the very beginning of his tenure, to mean that there was maybe going to be this much more market-oriented, positive reform trajectory in China. So you see that, even though Wenzhou Bao is on his way out as he's making this speech and advocating for more private competition in finance, it looks like the next administration will continue. So the bureaucrats down below who actually implement this are very much think that they're consistent with all the political directives when they invite the big tech companies into the financial sector.
Speaker 1:There was another line that you quoted from Li Keqiang. He said one small step for WeBank, one giant step for a financial reform. That hit me really hard. I would not expect that to be uttered by him as he's looking back now. So why were there so enthusiastic in that early period about this kind of new tech sector in FinTech in China?
Speaker 2:Yeah, one thing to understand is a lot of Chinese policymakers have an engineering background and there's long been, including under Mao, this real excitement about new technology and what kind of new possibilities it can have for modernization and growth, and China's been especially obsessed with modernization since 1978. So when they see the way that technology was potentially changing finance, they really wanted to make sure that they were at the vanguard of how that was happening and the government wanted to be extremely encouraging of this adoption so they could see this is a new powerful force potentially for productivity and growth in China which can help make them more prosperous.
Speaker 1:I've always wondered this question and again you raised it in the book. Why did China become the epicenter of Japanese quick response code technology?
Speaker 2:The story of these QR codes, which now I think we're seeing more in use around the world, is that they were actually invented by a subsidiary of Toyota to track supply chains, because a regular bar code can't include very much information. It's not actually that easy to scan because it doesn't know where the bars are versus where the scanner is. It's a much better technology and that really helps when you have a huge alphabet like Japanese or Chinese. When the fintech companies are deciding how to initiate a payment, which is really simple. You're just transferring a little bit of data. You're saying here are my payment credentials, use those, contact the network, see if I actually have the money and initiate that transaction. Very simple, that can be on a card in a magnetic strip, can be all over the internet. What they saw is that the technologies like Near Field Communications and NFC in the US were causing the digital wallet providers a lot of problems with coordination.
Speaker 2:Apple didn't want to let other apps use NFC. On the iPhone, for example, they said everyone who has a camera on their phone, which they do now, good technology can read a QR code. Everyone who has a screen that we can get access to, as any app on any phone can display a QR code to scan and make a payment. They looked at that technology and said this is a really low-cost way to expand financial payments without people having to buy a separate dongle or a point of sale terminal or anything. The lowest tech version of this is just printing out a QR code on a sheet of paper and taping it onto your food cart in the morning, and then you don't even need a mobile phone yourself. You can just confirm that people who come in and scan that code with their phone have actually paid the account. So it turned out to be a really great technology, at least to start the mobile payments revolution.
Speaker 1:Why did Uabao able to offer such high interest rates when it started out?
Speaker 2:It was a very felicitous time. So Uabao is a money market fund. What that means is it takes a lot of money from individuals or institutions who want to invest and it farms those out to the money markets. So it will lend that money back to banks or it might buy government bonds or something Generally very safe assets.
Speaker 2:And what was happening luckily for them at that exact same time is that there was a real contraction where the central bank was trying to fight runaway credit growth and that made credit really scarce. These guys came with this flood of potential consumer money to the banks and said how much interest will you give us in exchange for getting you a few billion Remin B? And the banks were willing to pay up a lot because money from other sources was constrained and Alipay was able to take those high interest rates and passed almost all of it directly on to consumers. And it was, in a sense, a loophole because if you put the money in the bank as a deposit, the central bank limited how much the banks could pay on those and those interest rates were really low and a money market fund without those restrictions, especially under those market conditions I mentioned, could offer a much higher interest rate without necessarily taking much more risk.
Speaker 1:And that's a point we're going to come back to a bit later. You spent a fair amount of effort in the book talking about the social credit system, which I think is very important, so I'll ask the question this way how is it that IHOL, which is a online dating platform, come to use social credit like German credit in its different profiles? How does it become so ingrained in Chinese society?
Speaker 2:If you think about the United States, which is the market I know best, we have three credit bureaus that collect data from different creditors that say this person borrowed this much on their credit card this month and they paid back this much the next month, or they defaulted last year, that kind of thing. And then there's FICO, fair Isaac Corporation, which takes a lot of that data, plus maybe some other sources, and tries to create a score which says how likely is this person compared to others to pay back this loan if I give them the loan? And the better the credit risk, the more you're likely to be willing to lend somebody at a lower interest rate. China did not have this kind of infrastructure. They had a system at the central bank which had data only on a small number of people who took out credit. Most people in China maybe had a mortgage but didn't really use other types of credit, which leads to a chicken and egg problem. If you don't have a credit history, people won't give you a loan. If you don't have a loan, you don't have a credit history. So you're stuck in this cycle.
Speaker 2:And what Ant was able to do with this Jerma this is called Sesame Credit System is take all the alternative data it had on payments that people were making with digital payments and their purchase histories and where they are and all sorts of other behaviors like what they buy online, was able to come up with some decent system for determining how much of a credit risk they were without necessarily having a credit history. So once you have that kind of tool, it's really useful. If you're a hotel and someone's checking in, they don't have a credit card, you don't need a charger deposit if you know that they're a good credit risk. If you want someone renting a car, same thing with a deposit. If you want to extend them alone, you can probably give them better loan terms. So it became a really useful tool in the absence of the kinds of things that we, in the US at least, took for granted.
Speaker 1:So this move from Jerma to upwards is a very hot debate and discussion about Chinese social credit large and people always conflict. The two things Did this, you think, start the more government-oriented version of this that people now think is oh, it's so bad, it's so risky. Is this the origin point of it, or something else?
Speaker 2:I think it's the origin point of the meme that China has this really scary, evil social credit system, which I think is actually really overblown, because people take the existence of this concept, which is social credit it actually originates back into history and checked out where this term comes from, and it comes from them looking at more advanced economies and seeing that they have a system they like to put social in front of things. They're nominally a socialist country, right. So they look at a pretty capitalist-looking credit system of credit histories and credit scores and availability of credit and they apply to more broad lens to that saying how trustworthy is somebody not just based on whether they do pay back their loans, but also whether they pull down the fire alarm in a train and stop at that kind of thing. And that system is very low-tech it's a bunch of blacklists. If you do something that the Chinese government says is really bad, you get on one of these blacklists and then you get often very disproportionate punishments.
Speaker 2:But people who weren't China experts per se read about this thing, which is actually scary in many ways, considering China's surveillance apparatus and that the courts are not independent, as an example, and then looked at the sesame credit, which is very data-driven but doesn't really have that much impact on your life. If you don't have a high-sesame score, you might have to put a deposit down. If you don't have a credit card and you check into a hotel, that's not the end of the world. But if you are on the social credit blacklist, then maybe that hotel won't let you stay there. So that is an actual, really scary thing and you can say in some very broad conceptual way that sesame credit is part of the social credit system. But it's really hard for me it has been really hard for me to track down any specific ways in which those two systems interact that much.
Speaker 1:I take it you spent quite a lot of time researching Jack Ma, paulie Ma and so on. Jack Ma is not the business figure one would think would be at the head of a company, like at a financial or Alibaba. It's still very common as a black box to me. How is it you think that Jack Ma was able to pull this kind of corporate organization growth off, given his particular skill sets?
Speaker 2:So Jack Ma for those listeners who don't know is a former English teacher who takes pride in the fact that he failed his college entrance exam in the past and he even said it once. He tried to apply to a job at Kentucky Fried Chicken and they wouldn't take him. But he's someone who has a lot of tenacity and just always kept trying, and one of his first startups didn't do too well. He had a history of his business. At one point had to partner with a state owned company and that state owned company, according to his reporting, took over his company in ways that he was not expecting. So that led him, to say, to have a real, nuanced understanding of the Chinese government, which he's summed up by saying be in love with the government but don't marry it. Don't get too close, but understand that it's important.
Speaker 2:And if you look at the early investors what they said about Jack Ma, they said that he was really good at taking ideas that were successful abroad and bringing them and adapting them to China. And that's what he did with Alibaba, which took a lot of inspiration from eBay and other e-commerce sites around the world. He discovered the internet outside of China as an example, and then the finance side, learning from PayPal. So he was someone who was really open to ideas from abroad and he was really committed to working crazy hard to make them work in China's specific circumstance and that ended up working out well. He was at the ground floor of internet taking off and e-commerce taking off and all of that Really maybe. Right person, right place, right time.
Speaker 1:Another person in China that is not that often discussed when thinking about fintech, but you mentioned him quite a lot in your book, so it's still a challenge one. And why was it that he was also far thinking but so interested in propelling fintech in China? And then after that, why did he just seem to turn a cold shoulder after he retired from the PBOC?
Speaker 2:Joe Xiaochuan was the prototypical pro reform Chinese official. He worked in the Chinese state banking system. He worked in designing reforms that took China away from a planned economy towards a more market economy and he saw all the ways that system was really flawed and he saw that market mechanisms would solve a lot of it. But he also saw that technology might solve a lot of the problems. If you're thinking about a system where you're worried that banks are going to extend a loan because the government asked them to, that loan maybe will go bad and drag down the bank's profitability, take credit away from productive enterprises, that kind of thing.
Speaker 2:If instead you have some sort of objective, data driven approach, maybe that can help you get around some of that political interference. That's just one example, and he saw all the operating inefficiencies as he became part of the leadership of some of China's state banks and when he went abroad he saw how the internet was being used in finance and said this is something that we need to apply to China. So he was very much in favor of that. And he saw ordering the banks to become more efficient wasn't going to work. You needed new competition, and strong new competition, and technology would be one advantage for the upstarts that could create a real competitive ecosystem in a way that maybe firms that were not armed to technology couldn't overcome the advantages of incumbency and political power of the state banks.
Speaker 1:You made a point about that, jack Ma's now infamous 2020 Buns Summit speech. He made a glaring factual error at the beginning, which he said would have been caught easily by any reviewer team, so this likely means that he did not have the speech reviewed before delivering it. You also made a point that Ma read the speech instead of actually going free will on the speech, so why did he choose to make such a dangerous speech at that time?
Speaker 2:I've heard a lot of explanations actually. So this is a famous speech where he, jack Ma, is right before the initial public offering of Ant Group, which is poised to value his just the fintech part of his business empire at around over $300 billion, on par with giants like JP Morgan and Mastercard. And he gives this very curious speech where he really calls out and insults regulators, especially the banking system, calling them a bunch of pawn shops. They have stuck in pawn shop mentality, and one reason for this might be that in the past, there were regulations which were proposed for his businesses and he took to the public sphere to defend it and put out these very strongly worded op-eds and said don't kill innovation. And back then he won around 2014. He was able to push back against regulations which were debatable in terms of how much they're protecting banks versus really ensuring that online payments were secure. And then here there were these regulations proposed that would have made it much more expensive for Ant Group to make loans, and that was a key part of the profitability of the company.
Speaker 2:So it might be that he thought that he had enough support among policymakers to give this speech and that this would help tip the scales in his favor, or maybe he felt that the writing was on the wall. He was already pulled back from Alibaba and it looked like freewheeling era was about to be over and he wanted to go out with the bang. Because he's always had this very colorful personality, often very quotable and things, and he just seems to have definitely miscalibrated the political moment. But exactly why he did this speech is a bit unclear. A lot of well-connected people I've talked to in China provide different explanations and, as you pointed out, I wrote in the book. It seems he kept the contents of the speech really under wraps to a very small group, if anyone, before giving it.
Speaker 1:Did you think this speech really assured in the more cold, shorter approach to fintech, or was that coming anyway and this happened to have an acceleration of it? Hopefully, let's do it faster. These entrepreneurs are going to get hit out of control.
Speaker 2:Yeah, I think that their writing was on the wall that once a fintech sector stops being really small and becomes the main way that people use financial services in the country, all the volume is higher, all the risk is higher. You're going to expect a lot more regulation.
Speaker 2:So, that was coming.
Speaker 2:No matter what, I do think that a counterfactual it's impossible to prove, but a counterfactual version where Jack Ma does not give that speech, I think leads to much slower and much less onerous regulation of the sector, because in the political system, things don't filter up necessarily to the top unless there's a real problem. The fact that Jack Ma gave this speech, which seemed to be in direct contradiction to Wang Qishan, who was China's vice president, I believe, at the time, and Xi Jinping's focus on financial risk, it provided his enemies and those who really wanted to crack down on this space for a really long time with a political opening to say this is not just about a potential financial risk. This is someone who is attacking the government and is outside the government line, unwilling to accept the authority of the party. We really need to step in here. This is a political risk, not just an economic matter to be discussed and debated among bureaucrats and so that, I think, breaks the dam and leads to the flood of regulations that otherwise would not have necessarily happened so quickly.
Speaker 1:There has been obviously a lot of awe when it comes to thinking about fintech in China. Then some people also say the fintech in China is almost like a distraction from real concoct innovations happening elsewhere and also basically the US. We are already very digital and online. Why are we so fascinated with fintech in China per se? So why are you so fascinated with fintech in China per se?
Speaker 2:I'm fascinated because I lived through it. The speed of change in China from a really backward system to one that in many ways seemed better than what we had in the United States was really shocking. Just comparing to the United States, it took us far longer to get adoption of chip cards instead of really insecure magnetic strip cards for payments than it did for China to move from cash to fully digital payments, and all the ingredients that would be needed for tech companies to be entering finance and providing much better services to Americans were already there. Why do I have to hand over my payment credentials, my credit card, to a server in a restaurant who can then take my card, and you have to trust them. They could write down your card numbers and start making online purchases with it. If you didn't pay attention, you wouldn't even know.
Speaker 2:That kind of system is pretty insecure. And then, in addition, the US system is really expensive. It often costs between 2% and 3% per credit card transaction to make a payment, whereas in China it was much lower. So I thought how did this really interesting innovation happen in a nominally communist country? You see also that it's a harbinger of potential future. You get to see what it looks like when tech companies and finance are fused together and allows us to think do we want that in the United States? Would it make things better or worse than our existing system? So it's just a really great food for thought to compare your own country system to another, and it's just fascinating in itself. Such a cool story that I felt had to be told.
Speaker 1:Do you think there's some merit to the idea that because of the lower trust nature of these different societies, that the way how you think about these kind of innovative activities would be a bit different, For example, in Japan. Japan is a very high trust society. It's extremely cash-centric. It's a very low cash society, very low trust society and very non-cash-centric, at least in the richer cities. Do you think that kind of social element has some of the play or are they really reading too much of the situation?
Speaker 2:It's a really interesting thought the interaction of trust and cash. I would actually think that low trust societies would be more prone to using cash, because that's what things were in China at the beginning, before Jack Ma. That was one of the main problems that fintech companies had to overcome, which is, if you want to buy something online and it's a low trust society you're not going to send any money until you're sure they've sent the goods and that they're legit. But the seller isn't going to send the goods until they know if you're going to pay, because otherwise they might send you the thing. You get it and then you never send the payment, and then how are they going to track you down? So instead everybody would just drive somewhere, meet up or take the metro, meet up and inspect the goods and pay cash.
Speaker 2:That's the lowest trust way to do it. When you look at it, you make sure that it's legit. You might even run it through a scanning machine, but I think the really interesting thing is how China overcame that trust issue. I'm not sure in Japan exactly why things are still so cash based. I think in general, there's a lot of tax evasion involved in the difficulty of switching away from cash to something else, because if you're a business and you don't want to pay much tax, the easiest way to do that is to have a lot of your revenue being cash that you can easily under report and then find some other way to spend that money and it's much harder to audit.
Speaker 1:I was in Shichuan Bana for a little bit and I remember my friend so asked how to show me that he can pay his face at the nearby supermarket and he said, yeah, why can't you do this in Central America and the US and so on. I also had no answer to that question for him. I'm curious. You have an answer? Why is it that these in some ways almost like straightforward technological improvements to payments, have happened in China and yet the US or Western Europe, its very substantial technological edge, was not able to implement the same kind of payment system?
Speaker 2:In the facial recognition case. One reason you might think is privacy and concerns about somebody having a scan of your face and using that. So that's a major barrier. The other I would say is what's the business case for face payments? How often is it that somebody goes to the supermarket without their phone, without the ability to scan a QR code or use an NFC payment or something like that? You have to sit there in front of the machine while it scans you, and my understanding of how the machines worked, at least in the beginning, was that you had to type in your phone number or something. So all it's doing is not actually looking at your face and pulling up exactly who you are and charging you. It's comparing whether your face matches some account information they already have.
Speaker 2:And if you compare the user experience between the two, I don't think you see it as any better to have facial recognition payments. So I think that's really the interesting thing is that in a lot of these cases, there's experimenting with this technology, which seems cool, but it doesn't necessarily actually make sense to implement. And if you compare, say, what Amazon does, where you walk into a store, you quickly scan your phone, you pick up all the items you want and then you walk out and you don't have to pay for anything. It's all automated. I think that's more useful even though it's not facial recognition in terms of improving the experience, than a facial recognition payment.
Speaker 1:Do you know who did that first? I know in China the Aliexpress Financial Enable stores also have that same feature. I'm not sure which came first, but was it that Chinese first mover advantage on that particular Amazon Go store?
Speaker 2:I think it's pretty similar, but I think they caught on more in China. I don't know. It's been a few years actually now since I've been to China due to the shut down the country, the ability to go to the country for foreigners for a while. I'd love to see how spread out it is, but I haven't heard it becoming necessarily ubiquitous, same as the US, where it's not everywhere.
Speaker 1:So in a presentation you gave about the book you had a very nice slide, so you said it was a wealth far ago where it had the comparison between the unbundling and then bundling. So the unbundling of financial apps in the US is so the way how tech FinTech companies go forward and then the re-bundling of financial services in China's way how FinTech companies go forward Is it because essentially the US has so many services so fast or early that the ability of FinTech comes to offer much newer things with a lot less evident, and that's why in China you were able to have these kind of more super app FinTech companies.
Speaker 2:Yeah, I think it's a combination of two things. One is exactly what you said, which is, if you want a full suite of financial services in the US with FinTech companies. At that time, you had to download dozens of apps and try them, and each one's trying to pick a small piece. The search costs as a consumer to find those apps, the marketing costs to those apps to find users, and the amount of different apps you need to trust with your sensitive information just makes it really cumbersome. There's a famous quote there are two ways to make money. One is bundling and one's unbundling.
Speaker 2:Us and China tried the opposite approaches and it turned out.
Speaker 2:The bundling approach of combining all the tech services with financial services was really successful, and I think one other reason for it, beyond the strategy, is that the state of services in China was so poor when these began, so, if you think, and the quality of financial services provided by the banks was so poor compared to the United States.
Speaker 2:So if you're a consumer and you're considering whether to try something new that is potentially super convenient and can open up all sorts of possibilities for you and is way better than everything else that's on offer, it makes sense for that all to be bundled up in one thing, whereas if you're in the US and you already have a decent bank, you already have decent Uber ride sharing service, you have decent kind of everything else. There's not really a reason to bundle that all into one single platform, which can actually be cumbersome. So a lot of it is really about the backwardness that then allows them to leap forward and try something new because it's just so much better, whereas in the US it's much harder to get that much better than what existed.
Speaker 1:Do you think it was correct for a SIFIUS to block the financial from acquiring money grab back in 2017?
Speaker 2:It's difficult to say their information they use a lot of classified information and things but I do think that payments is a really sensitive area and especially with the concerns raised about money transfers for military service members and that kind of thing, that would have given one of the things that they're worried about.
Speaker 2:I'm not sure it's really hard to weigh without being on the inside how important these concerns are, but one way that I understand that in the intelligence area people recruit people to turn is they find people who are in financial difficulty, who are missing their payments.
Speaker 2:They're really struggling and then that's the person that is much more likely to be willing to trade their country's loyalty for a bribe. And that's made the US, I think, really sensitive about allowing Chinese firms to get access to that kind of financial data on Americans and the ability to build a buy this kind of ready made worldwide payment infrastructure that could then be expand all sorts of Chinese services on it. I can see why there might be a good national security concern there, but I can also see why you might be able to have some sort of what's called a mitigation agreement where they say you have to carve out this element and that part can't be sold or no Chinese nationals can be accessing this data, you have to design a privacy protecting system that keeps that stored in the US. That kind of thing may have been possible, but it's hard to know without seeing what Sifia saw.
Speaker 1:That seems to be a very difficult point, given that there are Chinese banks that operate in the US and have customers already, and you have a lot more details about some of the financial life from their banking account data directly.
Speaker 2:Yeah, but one thing to see is that there are Chinese banks operating in the United States but they aren't really. To my knowledge, your average mom and pop person is not going into an ICBC bank and having an opening up a checking account with them like your average American. I think a lot of what those services are is serving Chinese who are overseas and Chinese businesses that are overseas and connecting them to the US dollar and the US financial system. In China there's extremely limited foreign bank penetration compared to most markets. My guess is if you looked at the US numbers, you'd see something similar.
Speaker 1:My final question. I have a claim the most overrated aspect of Chinese financial innovation is the ECNY. What's your take on that?
Speaker 2:100% agree. I can easily expand on that if you'd like. Yes, please.
Speaker 2:China was really nervous by the introduction of Bitcoin and how excited Chinese people were to use Bitcoin because it really undermined a lot of their control over the financial system. So, although they allowed a lot of private firms in, they haven't really allowed many foreign firms into the financial system and payment system, and Bitcoin counts as a foreign thing because there are no capital controls on Bitcoin. The Chinese government can't easily get information on who's transacting in Bitcoin in a way that they can, whether it's a fintech app or a banking app, and so they created this largely for government control purposes and to understand how to leverage the technology. But, as we've talked about for the last while here, what is provided already by the Chinese tech companies is really convenient and then covers a large portion of the Chinese population.
Speaker 2:So what you've seen in the years of piloting this thing is that it's hard to find people who really want to use it. They can talk about how great the technology is, and I think a lot of that stuff is real in terms of it being important and a potential slight improvement on things, but it's really hard for the government to come in and design something that's going to work better than some of the best functioning payment systems in the world. And when it comes to threatening the US dollar, I think they're so incredibly far away from that. If you can't get a Chinese person to stop using Alipay and use ECNY to buy their breakfast from a little cart in the morning, it's hard to imagine that you'll be able to convince the world's financial institutions to switch away from the US dollar and start using a Chinese digital currency anytime soon internationally.
Speaker 1:Our team. This has been a very fun conversation, Thank you.
Speaker 2:Thank you.
Speaker 1:Be sure to follow Martin on X formally Twitter at Chor Semper Martin and also buy his excellent book. If you have any questions or comments at all about this episode, you can also find me on X at Rashid Goa as Rashid GO and of course, I will add links to all these in the show notes of this episode. Also follow the CPSI to get our newsletters and also updates about future episodes and also some very good long form pieces on Caribbean policy issues. That's all for this episode and I will speak to you very soon.