BNP Paribas SA is facing questions from politicians in Washington over its work with Beijing’s electronic yuan project, highlighting political challenges that financial firms must navigate amid tensions between the world’s two-largest economies.
(Bloomberg) — BNP Paribas SA is facing questions from politicians in Washington over its work with Beijing’s electronic yuan project, highlighting political challenges that financial firms must navigate amid tensions between the world’s two-largest economies.
Executives at the Paris-based lender had considered its cooperation with the state-backed Bank of China Ltd. to facilitate the use of the digital yuan e-wallet to be relatively low-key. But then BNP recently received an unexpected phone call from a Republican congressional aide asking about its work, according to people familiar with internal conversations, who asked not to be identified discussing them. A scholar at a prominent Washington think tank also said he’s received queries from congressional offices on the topic.
Josh Lipsky, a senior director at the Atlantic Council think tank who studies CBDCs, as central bank digital currencies are known, said that he’s fielded questions from several congressional offices on the digital yuan, including the country’s work with banks such as BNP.
BNP in Paris declined to comment and it couldn’t be determined for which lawmaker the aide, who reached out to the bank, worked. The lender isn’t the only global bank that’s helping clients access the digital currency, known as the e-CNY, and it’s possible others have received queries.
Attention on the state-backed digital currency rose in Washington when Beijing piloted the tender at the 2022 Winter Olympics. Yet concerns that the currency could eventually supplant or bypass the US financial system, not China’s domestic use, are rankling some American officials. Republican lawmakers have been the most vocal.
When asked about the project after a recent classified briefing about China, Senator Bill Hagerty, a Tennessee Republican who sits on the Banking and Foreign Relations committees, said that the US needed to make clear that it was unacceptable for firms to work with Beijing on the initiative because of economic and privacy concerns.
Blaine Luetkemeyer kicked off a hearing in a House Financial Services Committee subcommittee he leads earlier this month by calling China’s electronic yuan “a risk to our national security” and by expressing concerns about maintaining the dollar’s status as the global reserve currency.
In February, the Missouri Republican introduced a bill to prohibit US money service businesses from working with the e-CNY. It’s unclear whether his legislation has any chance of passing, but concerns are bipartisan. For example, last year, a high-profile Senate bill co-sponsored by New York Democrat Kirsten Gillibrand called for agencies to develop security measures for using the digital yuan on US government devices.
BNP Accord
BNP said in May that it would collaborate with the Bank of China to satisfy the needs of corporate clients, such as payments in digital yuan through e-wallets.
Hang Seng Bank, which is controlled by HSBC Holdings Plc, has also partnered with a local Chinese bank to offer e-CNY services to corporate clients.
China is a front-runner in the global race to launch a CBDC and is testing a digital yuan in major cities including Beijing and Shanghai. The Federal Reserve continues to study whether it makes sense for the US to follow suit with some arguing that failing to do so could risk dollar dominance. Detractors argue that the US payment system is already electronic and global and some mostly Republican politicians have argued that CBDCs also increase government control and pose threats to privacy.
Many concerns around the e-CNY project are longstanding in Washington, but they’re now part of a broader set of threats that some lawmakers see coming from China. That chorus is growing louder as efforts by the Biden administration to improve relations between the world’s two biggest economies flounder.
Deteriorating Ties
Economic jostling has been a major factor in the rapid deterioration in US-China ties over the past few years, and part of that has been efforts from Beijing to promote more use of its currency internationally. The US has tried to limit China’s access to high-end semiconductors and blacklisted Chinese companies and is looking at restricting investment there.
China’s Premier Li Qiang recently warned governments that attempts to politicize their economies will only fragment the world.
–With assistance from Amanda Wang and Allyson Versprille.
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