Digital Yuan: Trade, Gold, and the New Money Rails (EP. 305)

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So if you want to buy my gold,
you want to collateralize my

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gold, you want to do create new
products on top of these gold,

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you can have now new
denomination.

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Now of course, it doesn't make
sense to have this new

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denomination to happen entirely
in the traditional RMB sense,

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right?
So this is really where the

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digital RMB, the digital UN, the
offshore RMB in digital form

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could become very interesting.
This is Money Never Sleeps.

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Sharp riffs, big ideas and real
insights from smart people.

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I'm Pete Townsend.
Let's go money.

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Never sleeps.
Well, so joining me today is

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Sean Lee.
Sean is deeply involved in

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stable coins and on chain
finance across Asia and the

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Middle East.
He's a senior advisor to the

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Crypto Council for Innovation.
He's a Tech Stars mentor.

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He was previously CEO of the
Algorand Foundation.

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Sean, you've been with me before
on this show.

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So thank you and it's great to
have you back.

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Thank you for inviting me.
So Sean, just to dive right in,

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you were in meetings with the
People's Bank of China last

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week, the PBOC.
You made a comment to me

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afterwards.
It really stuck.

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You said that after those
meetings, the China is not

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dabbling with a digital yuan.
They're serious about developing

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the ecosystem, both for RMB
internationalization, the

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renminbi, and in response to
trade conflicts.

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What did you actually see that
led you to this conclusion?

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So China has been developing
their CBDC, that central bank

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digital currency for a number of
years.

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And most of those
experimentation as well as

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actual activation have been
onshore.

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And what that means is it's been
used inside of China and there's

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been billions of transactions
going through the system

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already.
And that's in China.

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It's called the ECMY.
So in my conversation last week

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with the PBOC, what was very
interesting is that they are now

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starting to look at the digital
currency at the digital yen as a

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vehicle for offshore settlement
and offshore transactions.

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So given the digital rails that
these currencies are running on

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and the fact that the offshore
RMB potentially will be going on

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the digital rail as well have
tremendous implications from a

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trade finance, cross-border
settlements and more importantly

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in today's world geopolitical
tensions and everything else.

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There's going to be quite a bit
of trade flow that could be

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running on these rails.
And I think that's the reason

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why the meeting with PBOC and
was with the Research Institute.

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So it wasn't directly with the
central bank, but the research

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is very much around how does
this work in the international

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markets and how could it inter
operate with other forms of

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digital currencies including
license stable coins and

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potentially bank deposit tokens.
It sounds like with these little

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bread crumbs that you're
dropping here, Sean, that this

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is less about currency itself
and more about infrastructure

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and that where the geopolitical
situation in the world right

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now, trust is fragmenting, trade
is fragmenting. 85% of the

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world's commercial activity at
the B to B level I think is the

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figure is denominated in USD.
China is stepping into this, and

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has been for a couple decades
now, and that it seems to be

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that China is focusing less on
persuasion and more on building

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optionality into how money moves
not just for themselves, but for

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any other trading partners.
But I think the key message

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there is they are not asking
their trading partners to choose

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one or the other.
I think the message is they

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realize that all the sovereigns
require optionality.

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All the sovereigns want to
protect your own sovereign

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currency.
So it's more more around

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leveraging this new form of
infrastructure to still be

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respectful to a different forms
of currencies and different

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formats of currencies and ensure
that trade flow doesn't stop.

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So how do you use technology?
How do you make it continue to

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comply and ensure that the trade
flows and the existing system

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can still function?
Very important.

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Lots of lots of discussion
around these areas.

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With that, the primary objective
here, obviously growing R&B

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usage globally could be one of
them.

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Maintaining control can be a
second one.

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Absolutely.
Or building geopolitical

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optionality.
How do you prioritize all those?

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I will actually give you a
fourth.

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The 4th is that you either force
someone to use it or you give

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them an alternative, but there
has to be enough incentive to

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use that alternative.
And that incentive could be in

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the form of, you know, monetary
incentives, or it could also

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become and be in the form of a
unique product and services that

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you can offer, thereby other
makings life easier, cheaper,

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faster, whatever it is that
allows them to actually

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willingly choose it.
And the reason I bring that up

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is the last couple of days in
Hong Kong here was the Asian

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Financial Forum.
So that's the annual big

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financial conference where all
the policy makers from Central

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Asia, from the ASEAN countries
and abroad as well come here and

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talk about trade and, and lots
of MO us and lots of agreements.

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One key one that was announced
was the setting up of the Hong

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Kong's gold exchange.
Now gold to those of us that are

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in the digital asset industry
have always been like that's OG

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gold, right?
We're focusing on digital gold,

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right, Bitcoin and all of these.
But 60% of physical gold demand

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come from Asia and out of those
60% predominantly they come from

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both India and China.
And that's cultural, right?

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When when we have weddings, the
bride usually is wearing a head

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to toe like in gold, right?
And it's gold something.

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So there's a lot of physical
demand and obviously given the

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the history over the last 100
years with with all the wars and

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everything else, anytime there's
uncertainty, gold becomes the

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number one thing.
So there's been a lot of demand.

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China has been building a very
robust gold infrastructure.

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So Hong Kong setting up as a
gold trading hub in supporting

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road to New York and London
becomes quite interesting

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because now you've got an Asian
time zone and also the domain is

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actually coming in here.
Now the reason I'm bringing this

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up is there's a lot of subtle
messages when these

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announcements are coming out in
terms of potentially getting

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access to these physical gold
that have full redemption,

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redemption capability to be
denominated in R&B.

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So if you want to buy my gold,
you want to collateralize my

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gold, you want to do create new
products on top of these gold,

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you can have now new
denomination.

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Now, of course, it doesn't make
sense to have this new

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denomination to happen entirely
in the traditional RMB sense,

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right?
So this is really where the

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digital RMB, the digital UN, the
offshore RMB in digital form

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could become very interesting,
very, very interesting.

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So now you're tying a very large
economy, second largest in the

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world, doing a lot of trade with
US, Africa, with ASEAN, with

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Latin America.
And at the same time with this

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physical demand of gold, OG gold
continuing to go up with

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potentially no end insight, at
least for the next little while

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until the uncertainty subsides.
Then all of this set up and the

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advents of what they're trying
to do and also what PBOC is

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trying to research.
I may be a guessing man, but I'm

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pulling all of these threats
together.

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I'm like, oh, that is a very
interesting play.

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You have a way of putting chills
down my spine, Shawn, when we

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speak.
And I think that's just about

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how deep we are into the space
that that happens is that

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there's the geopolitical
optionality here that's driving

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some of this.
But there's the new, new and the

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big opportunity with moving
assets on chain is new products.

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And the mix of these two
catalysts here are going to

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create some very, as you said,
interesting opportunities here

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for not only sovereigns, but
corporates as well as startups

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and those in the middle of all
these flows.

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So Pete, maybe I'll add one more
thing on top of that that that's

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really going to take this
conversation to the next level.

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So we've been talking about
stable coin from a Fiat

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reference perspective, right?
So AUS dollar stable coin being

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backed by U.S. dollar assets and
so on and so forth.

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Obviously, there has been
attempts to do gold backed

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stable coin, Bitcoin backed
stable coin and so on and so

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forth.
With the momentum of gold being

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where it is today, that
conversation also have much more

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meaning towards what it is
right?

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If you have a stable coin that
is backed by physical gold with

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full redemption capability, and
given the nature of gold itself,

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that form of stable coin becomes
quite interesting.

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Who's to say that the
collateralization of the gold

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products wouldn't become a
thing?

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So now this is really where the
products like you had another

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layer, another layer, another
layer on top that really creates

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a new economy based on
everything that we know, but in

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completely different format.
This brings to mind what's going

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on in the US right now.
We're seeing more and more

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utilities that are being built
that are allowing stable coins

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to be spent and then tokenized
deposits have come along in the

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last year or so.
And some of that rhetoric is

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around, well, do we need both?
And I think we do.

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And it sounds like this story
that's coming out of China is

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reflective of that story that's
in the US.

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If we have founders working on
building these from both angles,

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from the Asian infrastructure
and the US infrastructure, we're

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going to end up with some pretty
interesting innovations when the

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two meet in the middle.
I think you're already seeing a

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lot of innovation and also
convergence on that front.

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Just recently, it was announced
that the digital yen natively

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will be paying yield.
What does that resonate, right,

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you know, towards something that
we're familiar with?

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You're bearing stable coins,
right?

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And Oh yeah, it's still being
debated as part of the

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legislation in the US and
elsewhere, but it's becoming

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quite interesting.
If you have a form of digital

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currency, whether it's CBDC or
not, that is natively paying

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yield again, incentive, right?
I talk about incentives.

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It is you want people to use it.
What is that incentive, right?

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And that the incentive that is
both recognized by retail and

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more importantly recognized by
the institutions.

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I get this question asked a lot
as well, right, Is a stable coin

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versus tokenized deposit versus
CBDCI think all three have their

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own place to to play.
They all serve different

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purposes.
In some use cases they overlap,

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in most they just don't.
So many different opportunities

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to build upon these stacks that
started with the Bitcoin white

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paper, what, 17 years ago, OK.
And looking at it from that

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angle of the origin points,
those that are a lot closer to

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the origin points now are the
founders.

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So those for those founders who
are building in payments, stable

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coins or on chain finance in
general, what do you think they

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should be paying attention to
over the next one to two years

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as a result of all of this?
Well, first of all, to those

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that are listening, perhaps they
can look at the project I'm

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working on which is called OSN
Open Stable Network and we are

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building infrastructure to solve
part of what we just talked

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about.
So that's one a little press

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self promotion there.
The word interoperability in the

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past in the blockchain space
have meant mostly around cross

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chain, cross protocol.
How do you bring one asset to

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another and make them make sure
they interoperate smart contract

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from one to another.
I think that word has very

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different meaning now given
these four different forms of

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digital currency as well as
different considerations from a

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compliance and regulatory side
that you need to put into

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attention.
So that word actually has a much

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more multi dimensional meaning
and any innovators that are

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looking at that space and
looking a real World Trade flow

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and be able to build
facilitation technologies,

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orchestration technologies to
bring that improbability to the

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next level.
I think those technologies and

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those capabilities are sorely
needed.

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Definitely.
So many opportunities here and

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this as we've been talking
about, this is not about

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replacing the dollar.
This is about giving everyone at

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all different layers of the
stack, from institutions,

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individuals to B to B, giving
them options and giving the

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sovereigns options as well.
And that these infrastructure

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choices really do matter, right?
So, Sean, what is the best way

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for people to find out more
about you and what you're

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building?
They can follow me either on X,

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That's Crypto, Sean Lee, SEANL,
EE, or they can find me on

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LinkedIn.
I do a lot of posting there.

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I also do have a Forbes column
where I write regularly around

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digital asset policies and
innovation, so follow me on

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there as well.
Wonderful.

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Thank you so much.
Sean, you've added a ton more

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momentum to my investment thesis
as it was anyway, right?

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So really appreciate you coming
back to do this with me.

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Thank you, Pete, good to be on
the show.

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Money never sleeps, pal.