Lazard Insights

Beyond : China Pulls Central Banks into the Race

Aristotel Kondili

Lazard Emerging Income and Lazard Emerging Market Core Equity

February 2021

Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the date of this presentation and are subject to change. Comparing DC/EP, Cryptocurrency, and Stablecoin

As of 31 December 2020 Source: China Power 2 Volatility: Cryptocurrency vs. Fiat Currencies

Cryptocurrencies are more volatile than Fiat Currencies (30D Volatility)

150 CNY (Chinese Renminbi/Yuan) EUR () Gold

100

50

0 2015 2016 2017 2018 2019 2020

As of 31 December 2020 The 30-day price volatility equals the annualized standard deviation of the relative price change for the 30 most recent trading days closing price, expressed as a percentage. 3 Source: Bloomberg, Lazard. China Payments Are All Nearly Digital

Nearly 85% of Chinese Payments Are Digital

(Millions) 1000

800

600

400

200

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19 2019 Number of internet users Number of online payment users Number of mobile internet user Mobile payment user

90% Payment as % of online users Payment as % of mobile users 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

As of 31 December 2019 4 Source: CNNIC Chinese Cross Border Payments

45% -100000

40% -80000

35% -60000

30% -40000 25% -20000 20% 0 15%

20000 10%

5% 40000

0% 60000 2013 2014 2015 2016 2017 2018 2019 2020 China BOP Net Error and Omission Non-Cum (in millions USD) Share of CNY receipts Share of CNY Payments

As of 31 December 2020 Source: SAFE, Bloomberg, Lazard 5 Chinese Renminbi has become a slightly larger component of global currency reserves

World Currency Composition of Official Foreign Exchange Reserves 100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2019Q1 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3

Claims in U.S. dollars Claims in euro Claims in Chinese renminbi Claims in Japanese yen Claims in pounds sterling Claims in Australian dollars Claims in Canadian dollars Claims in Swiss francs Claims in other currencies Unallocated Reserves

As of 30 September 2020 Source: Currency Composition of Official Foreign Exchange Reserves (COFER), International Financial Statistics (IFS), Lazard 6 Key Takeaways

▪ China’s DC/EP could be a significant step in the further movement of the Chinese economy towards a cashless society.

▪ The world’s major central banks, although behind China’s PBoC, will undoubtedly work on introducing their own central bank digital currencies (CBDCs).

▪ The PBoC will have better insight and subsequently ability to monitor the payment behavior of its citizens leading to improved and more informed decision making.

▪ CBDCs will help improve financial inclusion in China, and eventually globally, leading to a reduction of the informal economy.

Information and opinions are subject to change. Biography

Aristotel Kondili Director, Portfolio Manager/Analyst

Aristotel Kondili is a Portfolio Manager/Analyst on Lazard’s Emerging Income team and joined Lazard’s Emerging Markets Core Equity team in December 2020, where he has a research focus on macroeconomics and currencies. He has been a member of the Emerging Income management team since October 2004. Previously Aristotel was a supervisor in the operations group of Lazard Asset Management LLC. In that role, he was responsible for all index-related data, security pricing and operational support for the Emerging Income portfolios. Prior to joining Lazard in 2001, Aristotel worked at PortfolioPR, an investor relations/public relations firm. He has a BBA from Pace University.

8 Disclosures

As of 31 December 2020 Investments in global currencies are subject to the general risks associated with fixed income investing, such as risk, as well as the risks associated with non-domestic investments, which include, but are not limited to, currency fluctuation, devaluation and confiscatory taxation. Furthermore, certain investment techniques required to access certain emerging markets currencies, such as swaps, forwards, structured notes, and loans of portfolio securities, involve risk that the counterparty to such instruments or transactions will become insolvent or otherwise default on its obligation to perform as agreed. In the event of such default, an investor may have limited recourse against the counterparty and may experience delays in recovery or loss.

This document reflects the views of Lazard Asset Management LLC or its affiliates (“Lazard”) based upon information believed to be reliable as of the publication date. There is no guarantee that any forecast or opinion will be realized. This document is provided by Lazard Asset Management LLC or its affiliates (“Lazard”) for informational purposes only. Nothing herein constitutes investment advice or a recommendation relating to any security, commodity, derivative, investment management service, or investment product. Investments in securities, derivatives, and commodities involve risk, will fluctuate in price, and may result in losses. Certain assets held in Lazard’s investment portfolios, in particular alternative investment portfolios, can involve high degrees of risk and volatility when compared to other assets. Similarly, certain assets held in Lazard’s investment portfolios may trade in less liquid or efficient markets, which can affect investment performance. Past performance does not guarantee future results. The views expressed herein are subject to change, and may differ from the views of other Lazard investment professionals. This document is intended only for persons residing in jurisdictions where its distribution or availability is consistent with local laws and Lazard’s local regulatory authorizations. Please visit www.lazardassetmanagement.com/globaldisclosure for the specific Lazard entities that have issued this document and the scope of their authorized activities.

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