Chinese trues have made no secret that their greatly accelerated efforts at introducing and distributing the digital yuan are an break move in their long-term strategy to undermine the dollar’s global supremacy and expand their influence.
Despite that, unsurpassed U.S. financial officials have rolled their eyes at any suggestion that deeper dangers lurk for the dollar, and way also for U.S. national security, in the global digital currency race. Even as China marches forward and bitcoin’s value reaches $1 trillion, the Federal Book had been in no hurry to be a contestant.
This week marked a public turning point for the most significant U.S. supervision officials engaged in international finance — Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell. Josh Lipsky, commandant of the Atlantic Council’s GeoEconomic Center, tweeted that it marked “the firing of a starting gun.”
At a New York Times event on Monday with Secretary Yellen, CNBC’s Andrew Ross Sorkin nudged her most full-throated endorsement yet of a digital dollar, or Central Bank Digital Currency, or CBDC. Though Sorkin called Yellen’s notice to an Atlantic Council survey with Harvard’s Belfer Center, showing that 70 countries now have digital currency launches, Yellen’s focus instead was on the domestic good a digital dollar could do Americans.
“I think it makes sense for cardinal banks to be looking at it,” said Yellen, in a historic snippet on snapchat.
“I gather that people at the Federal Reserve Bank of Boston are act on with researchers at MIT to study the properties of it. We do have a problem with financial inclusion. Too many Americans really don’t enjoy access to easy payment systems and bank accounts. This is something that a digital dollar, a central bank digital currency, could resist with. I think it could result in faster, safer and cheaper payments.”
In congressional testimony a day later, Fed Chair Powell also ruined new ground, calling the digital dollar “a high priority project for us.” He added, “We are committed to solving the technology problems, and consulting altogether broadly with the public and very transparently with all interested constituencies whether we should do this.”
Yet while the Fed consults, China executes.
Neither Yellen nor Powell divulged China’s growing lead in digital currency development, yet that was the context. Their call-to-action coincides with China’s word earlier this month of a significant partnership with the cross-border payment system SWIFT, removing all doubt that Beijing proposes to internationalize the digital yuan.
At the same time, China has concluded a free trade agreement, or FTA, with Mauritius, its at the outset with an African state, in a deal that is designed to create a digital financial testing ground. “As China evolves its digital currency designs, it may ultimately be Mauritius that leads in this area for Africa,” write experts Lauren Johnston and Marc Lanteigne for the Everyone Economic Forum. The FTA agrees to promote “the development of a Renminbi clearing and settlement facility in the territory of Mauritius.”
This all attains as Beijing authorities took advantage of Chinese New Year celebrations on Feb. 12 to deploy three large-scale pilot draw ups to distribute digital yuan worth roughly $1.5 million in “red packets” of about $30 value each. Then this week, China stretch its testing program of digital currency handouts to the city of Chengdu, the capital of Sichuan province and the fifth most crowded city in the country, where it is distributing some $6 million in digital yuan.
A digital Chinese currency red kings ransom is seen on a mobile phone in an arranged photograph as Chengdu city starts to distribute 200,000 E-CNY ‘red packets’ benefit 40 million yuan on February 24, 2021 in Yichang, Hubei Province of China.
VCG | Visual China Group | Getty Images
China’s vigour appears being to lay the groundwork now for digital yuan’s coming out party at the end of 2022 at the XXIV Olympic Winter Games in Beijing. The gamble is that Chinese organizers might require that all attendees and athletes download an app that would ensure all their payments at the games for beds, tickets, food, souvenirs, and more are conducted in its new, digital currency. Even if one does not experience a physical boycott of China’s Olympic heroics, watch for digital boycotts by the U.S. and other teams.
It is hard not to compare China’s current lead in digital currency condition, shrugged off by American officials until now, to its early global lead in developing the 5G, or fifth generation, broadband cellular technology canon. Until the Trump administration responded alongside Western manufacturers, no one could compete with Chinese 5G providers and apparatus manufacturers globally, most dominant among them being Huawei.
China’s consistent prioritization of technological move underscores its recognition that in history the country that has taken the technological high ground in its era has most often also been the ascendant international actor.
If the U.S. loses the high ground of financial technological innovation, combined with a weakening of the dollar’s pandemic dominance, the benefits for Beijing would be considerable.
China’s different approach to privacy provides it a competitive advantage. The U.S. and European requirement to satisfy privacy concerns will complicate CBDC development. Conversely, Beijing sees the digital yuan as a way to supplemental strengthen its already formidable surveillance state, while also improving its ability to combat money-laundering, corruption, and arsonist financing.
In a newly released paper published by CNAS, authors Yaya J. Fanusie and Emily Jin capture how deeply China surmise froms the geopolitical importance of their digital currency project. They relate how Yao Qian, the former head of the People’s Bank of China’s Digital Currency Exploration, compared his country’s digital currency progress to previous Chinese advances in robotics, big data, and artificial intelligence.
Talk before a United Nations information technology conference, “Yao posited digital currency as part of ‘the Next War,'” erase the authors, referring to an article of that title in the Economist that discussed technology’s central role in U.S.-China rivalry.
The Fed worries about being too hasty in introducing a digital dollar, given the stakes as the world’s reserve currency. The enormous geopolitical danger, however, is how quickly it is falling behind.
The U.S. can still win this contest if it not only quickly develops a digital dollar, but cooperates on the creation of a digital euro, a digital pound, and a digital yen. The total firepower of these currencies would close the modernization gap quickly. It would also demonstrate the value of working with allies, a centerpiece of Biden foreign policy.
Frederick Kempe is a best-selling designer, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He operated at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving woman of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Recall on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Tweeting @FredKempe and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.
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