Anxiety in the US as China Creates the First Major Digital Currency

Mish

A cyber yuan gives Beijing power to track spending in real time. Importantly, it's money that isn’t linked to the dollar-dominated global financial system.

Cyber Yuan vs Bitcoin and Altcoins

The cyber yuan is a government-sponsored digital currency designed to track the movement of every penny. Bitcoin promotes anonymity. 

Apps like Apple Pay,  Venmo, Paypal, and Google Pay just facilitate payments by skipping a credit or debit card middleman. They are not their own money. 

In contrast, China turned the yuan into a string of digits. It resides in cyberspace. On a  screen it displays with a silhouette of Mao Zedong and looks just like the paper money.

First for Major Economy

Please consider China Creates its Own Digital Currency, a First for Major Economy

A thousand years ago, when money meant coins, China invented paper currency. Now the Chinese government is minting cash digitally, in a re-imagination of money that could shake a pillar of American power.

China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. 

Beijing is also positioning the digital yuan for international use and designing it to be untethered to the global financial system, where the U.S. dollar has been king since World War II. China is embracing digitization in many forms, including money, in a bid to gain more centralized control while getting a head start on technologies of the future that it regards as up for grabs.

That an authoritarian state and U.S. rival has taken the lead to introduce a national digital currency is propelling what was once a wonky topic for cryptocurrency theorists into a point of anxiety in Washington.

Digitization wouldn’t by itself make the yuan a rival for the dollar in bank-to-bank wire transfers, analysts and economists say. But in its new incarnation, the yuan, also known as the renminbi, could gain traction on the margins of the international financial system.

Josh Lipsky, a former International Monetary Fund staffer now at the Atlantic Council think tank, said, “Anything that threatens the dollar is a national-security issue. This threatens the dollar over the long term.”

Encouraging Use

China already has 770 million mobile payment users. 

To facilitate acceptance, China conducted free money lotteries. 750,000 people got some free money in these lotteries. It is working on a method to allow the app to work without an internet connection. 

Coming soon, China will require everyone to use the digital currency. Paper money will be invalid. 

China will know who is paying, where they are paying, and how much they are paying, and what they are buying.

Pros 

  • Merchants can avoid transaction fees 
  • Problems with handling cash vanish.
  • Speed. Payment is immediate.

Cons

  • Privacy concerns of all sorts. Governments can and will snoop.
  • I fear things like "expiring money". 

De-Dollarization a National Security Issue?

I do cheer one thing, and that's the de-dollarization of the global economy. 

Under guise of national security, Trump made a global mess of things for reasons that had nothing to do with security. Unilateral sanctions on Iran and Gazprom are key examples. 

In general competition is good. Soon, countries will be able to tell the US to go to hell unless there is full international cooperation.

The dollar, isn't going away and it will not be replaced by the yuan any time soon, if ever. But the end of the ability of the US to unilaterally call all the shots is on the near horizon.

That's a welcome development. So is anything that forces the US to mind its own business. 

Mish

Comments (24)
No. 1-15
rob_abides
rob_abides

"But the end of the ability of the US to unilaterally call all the shots is on the near horizon."

The shock alone of losing this ability will likely kill some people (not sure if I am being sarcastic or not).

hoonose
hoonose

Ah, I love the smell of newly minted digital money!

Tex272
Tex272

Coming soon to a bank near you.

TexasTim65
TexasTim65

Carbon footprints aren't going down anytime soon if we are moving to digital currency and in fact it will increase them even more.

Not sure paper money will ever disappear or at least I sure hope it doesn't. When I get together for a golf foursome and we wager a few dollars per hole do we really need electronic transactions of that stored world wide forever and at what cost? At least paper money (well it's increasingly plastic notes in more and more countries like Australia/Canada since those last decades) just gets printed once and lasts a long time.

Six000mileyear
Six000mileyear

Any wagers how soon it will be until someone hacks a Chinese digital yuan account to make himself wealthy? The bigger the prize, the greater the motivation to take it.

Louis Winthorpe III
Louis Winthorpe III

"Bitcoin promotes anonymity. "

More accurately, Bitcoin is pseudoanonymous. The wallet address is an identifier, the ledger is public, and it would be hard to link the wallet address to an identity unless anywhere in the chain of transactions:

  1. Someone deposited or withdrew bitcoin from an exchange with KYC/AML regulations.

  2. Someone spent bitcoin and bought a physical item with a delivery address.

Odds are most people meet one of those conditions. If either of those leak then the anonymous identify of all transactions are blown.

Yes, there are coin tumblers that try to obfuscate coin transaction history. And they are probably run by organizations that have an interest in tracking transaction metadata.

Sechel
Sechel

This isn't like bitcoin or crypto. It's more a competitor to payment services like paypal

Scooot
Scooot

Doesn’t it bypass the need for a bank account. If so it’s quite a threat to the banking industry too.

Zardoz
Zardoz

This is great news for people that sell energy.

FromBrussels
FromBrussels

Irrelevant actually ! ....A war, at one point, between China and the US, when desperation and exasperation reaches its limits, is in the cards... and it won t be digital, I am afraid....civilisation is merely a thin veneer... underneath we re just as primitive like 10000 years ago despite all fckn digitalisation !

karljen
karljen

LOL, China's digital fiat doesn't threaten any currency, let alone the USD. Not now or the in the foreseeable future. Come back to us once China loosens its capital controls, becomes transparent and boots its communist leaders. smh, lol.

abelykh
abelykh

Expiring money will make negative interest rate easy.

ColoradoAccountant
ColoradoAccountant

"Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves." Norm Franz. I've lived my life by this but I am old. I need a quote that includes cypto so I can wow the young ladies when the pool opens.

Casual_Observer
Casual_Observer

In general competition is good. Soon, countries will be able to tell the US to go to hell unless there is full international cooperation

Not when the country oppresses it's people the way China, Russia and others do. Individual rights really dont exist in these places. Property ownership can be removed in an instant. This is why people continue to want to leave countries like this.

nicholasdouglas
nicholasdouglas

Anxiety is a common word to most of the people, especially in the middle-aged group people. There are many debates and controversies regarding USA and China's current situation. I am working as a senior advisor and help people with hvac repair services. Thanks for sharing this useful post.


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