Chinese officials have made no secret of the fact that their rapidly accelerating efforts to introduce and distribute the digital yuan are a start-up move in their long-term strategy of undermining the dollar’s world domination and expanding their influence.
Despite this, leading US financial officials have turned their eyes to any suggestion that deeper dangers for the dollar, and therefore also for US national security, lurk in the global digital currency race. Although China moved forward and the value of bitcoin reached $ 1 trillion, the Federal Reserve had no hurry to participate.
Until now.
This week was a public turning point for key US government officials who are engaged in international finance – Finance Minister Janet Yellen and Federal Reserve Chairman Jerome Powell. Josh Lipsky, Director of the GeoEconomic Center of the Atlantic Council, tweeted that it indicated ‘the firing of a rifle’.
At a New York Times event Monday with Secretary Yellen, CNBC’s Andrew Ross Sorkin urged her most full-fledged endorsement yet of a digital dollar, or Central Bank Digital Currency, or CBDC. Although Sorkin drew Yellen’s attention to a Atlantic Council survey with Harvard’s Belfer Center, which shows that 70 countries now have digital currency projects, Yellen’s focus was more on domestic goods, which are a digital dollar. Americans could do.
“I think it makes sense for central banks to look at it,” Yellen said in a historic snippet on Snapchat.
“I find that people at the Federal Reserve Bank of Boston work with researchers at MIT to study its characteristics. We have a problem with financial inclusion. Too many Americans really do not have access to easy payment systems and bank accounts. “It’s something that a digital dollar, a central bank’s currency, can help with. I think it can result in faster, safer and cheaper payments.”
In a congressional testimony a day later, Fed Chairman Fedell also paved the way for the digital dollar, calling it a high-priority project for us. He added: “We are committed to solving the technological problems, and to consulting very thoroughly with the public and very transparently with all interested constituencies whether we should do so.”
But while the Fed is consulting, China is carrying it out.
Neither Yellen nor Powell mentioned China’s growing lead in digital currency development, but it was the context. Their call for action coincides with China’s announcement earlier this month of a significant partnership with the cross-border payment system SWIFT, which removes all doubt that Beijing intends to internationalize the digital yuan.
At the same time, China signed a free trade agreement, or FTA, with Mauritius, its first with an African state, in an agreement designed to create a digital financial testing ground. “As China develops its digital currency plans, it could eventually be Mauritius that leads Africa in this area,” experts Lauren Johnston and Marc Lanteigne wrote for the World Economic Forum. The FTA agrees to promote ‘the development of a cleaning and settlement facility in the Mauritius area’.
This all comes when the Beijing authorities used the Chinese New Year celebrations on February 12 to deploy three large-scale pilot projects to distribute digital yuan worth about $ 1.5 million in ‘red packets’ of about $ 30 each. This week, China expanded its digital currency handout testing program to the city of Chengdu, the capital of Sichuan province and the fifth most populous city in the country, where China distributes about $ 6 million in digital yuan.
A digital Chinese red packet is seen on a cell phone in a regular photo as the city of Chengdu begins distributing 200,000 E-CNY ‘red packets’ worth 40 million yuan on February 24, 2021 in Yichang, Hubei Province.
VCG | Visual China Group | Getty Images
China’s ambition is apparently now to lay the groundwork for the issuance of digital yuan at the end of 2022 at the XXIV Winter Olympics in Beijing. The speculation is that Chinese organizers may require all participants and athletes to download an app that will ensure that all their payments at the games for hotels, tickets, food, souvenirs and more are made in the new, digital currency. Even if one does not experience a physical boycott of China’s Olympics, you have to look at digital boycotts by the US and other teams.
It’s hard not to compare China’s current lead in digital currency development, hitherto picked up by US officials, with its early global lead in the development of the 5G, or fifth generation, broadband cellular technology standard. . Until the Trump administration reacted with Western manufacturers, no one could compete with Chinese 5G suppliers and equipment manufacturers worldwide, especially Huawei.
China’s consistent priority for technological advancement underscores the recognition that the country that conquered the technological heyday in its era was also mostly the dominant international actor in history.
If the US loses the high level of financial technological innovation, coupled with the weakening of the dollar’s global dominance, the benefits to Beijing will be significant.
China’s different approach to privacy offers a competitive advantage. The US and European need to address privacy issues will hamper the development of CBDC. Conversely, Beijing sees the digital yuan as a way to further strengthen its already formidable supervisory state, while also enhancing its ability to combat money laundering, corruption and terrorist financing.
In a recently released article published by CNAS, authors Yaya J. Fanusie and Emily Jin note how deeply China understands the geopolitical importance of their digital currency project. They tell how Yao Qian, the former head of the People’s Bank of China’s Digital Currency Research, compared his country’s progress with digital currencies to previous Chinese progress in robotics, big data and artificial intelligence.
In a conference on information technology at the United Nations, Yao wrote a digital currency as part of ‘the next war’, the authors write, referring to an article titled in The Economist which discusses the central role of technology discussed in the competition between the US and China.
The Fed is worried about being in a hurry with the introduction of a digital dollar, given the interests as the world’s reserve currency. The greater geopolitical danger, however, is how quickly it falls behind.
The US can still win this contest if it not only quickly develops a digital dollar, but also collaborates on the creation of a digital euro, a digital pound and a digital yen. The total firepower of these currencies will be able to quickly reduce the innovation gap. It also shows the value of working with allies, at the heart of Biden’s foreign policy.
Frederick Kempe is a best-selling author, award-winning journalist and president and CEO of the Atlantic Council, one of the United States’ most influential think tanks on world affairs. He worked for The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-running editor of the European edition of the newspaper. His latest book – “Berlin 1961: Kennedy, Khrushchev and the Most Dangerous Place on Earth” – was a New York Times bestseller and has been published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe to Inflection Points here, and he watches the top stories and trends of the past week every Saturday.
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