Chinese officials have made no secret of their accelerated efforts in introducing and circulating the digital Yuan as an opening move in their long-term strategy to weakening global dominance of the dollar and expanding their impact.
Nevertheless, top U.S. finance officials have slashed at any suggestion that deeper risks will diminish for the dollar, and thus also for U.S. national security, in a currency race. digital of the universe. Even as China marches on and the value of bitcoin reaches $ 1 trillion, the Federal Reserve has been in no hurry to become a competitor.
So far.
This week marked a public turning point for the most important U.S. government officials involved in international finance – Finance Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell. Josh Lipsky, director of the Atlantic Council Geoeconomic Center, tweet that it marked “firing of a starting gun.”
At an event in the New York Times on Monday with Secretary Yellen, Andrew Ross Sorkin of CNBC promoted her full support of digital dollars, or Central Bank Digital Money, or CBDC. While Sorkin cited Yellen ‘s attention to a study by the Atlantic Council with the Harvard Belfer Center, showing that 70 countries now have digital money projects, Yellen’ s focus instead was on a potential domestic good digital dollar. Americans do.
“I think it makes sense for central banks to take a look,” Yellen said, in a historical snippet on snapchat.
“I gather that people at the Federal Reserve Bank of Boston are working with researchers at MIT to inspect its properties. We have a problem with financial inclusion. Too many Americans are not getting access to it Easy payment systems and bank accounts. This is something that a digital dollar, a central bank ‘s digital currency could help with. I think it could pay faster, safer and cheaper. “
In conference evidence a day later, Fed Chairman Powell also broke new ground, calling the digital dollar “a high-priority project for us.” He said, “We are committed to solving the technological problems, and to consulting widely with the public and very clearly with all interested constituencies on whether we should do this. to do. “
But while the Fed consults, China will execute.
Neither Yellen nor Powell mentioned how China was growing in digital currency development, but that was the context. The call-to-action coincides with China’s announcement earlier this month of an important partnership with the SWIFT cross-border payment system, removing all doubts to Beijing intends to internationalize the digital Yuan.
Meanwhile, China has concluded a free trade agreement, or FTA, with Mauritius, the first with an African state, in a deal designed to create a digital financial test base. “As China develops its digital currency plans, Mauritius may be the leader in this area for Africa,” wrote experts Lauren Johnston and Marc Lanteigne for the World Economic Forum. The FTA agrees to advance. the development of a Renminbi cleaning and settlement facility in the Mauritius region. “
This all comes when Beijing authorities took advantage of the Chinese New Year celebrations in China on February 12 to implement three major pilot projects to distribute digital yuan worth about $ 1.5 million in “red packets” worth $ 30 each. Then this week, China expanded its digital money billing program to Chengdu city, the capital of Sichuan province and the fifth most populous city in the country, where it is circulating around $ 6 million in digital Yuan.
Chinese digital money red packet on mobile phone is seen in a photo taken as the city of Chengdu begins to roll out 200,000 E-CNY ‘red packets’ worth 40 million Yuan on February 24 , 2021 in Yichang, Hubei Province of China.
VCG | China Vision Group Getty Images
China’s ambition seems to be to lay the foundation now for a digital yuan party coming out in late 2022 at the XXIV Olympic Winter Games in Beijing. The idea is that Chinese organizers could ask attendees and athletes to download an app that would ensure their payments at the games for hotels, tickets, food, souvenirs, and more made in their new digital currency. Even if one does not experience a physical boycott of China Olympics, look out for digital boycotts with the US and other teams.
It is difficult not to compare China ‘s current leadership in digital currency development, which has so far been postponed by American officials, to its early global leadership in improving the status of 5G broadband technology, or fifth generation. Until the Trump administration responded with Western manufacturers, no one could compete with Chinese 5G providers and equipment manufacturers around the world, mostly including Huawei.
China’s consistent priority of technological advancement reinforces the recognition that it is in history that the country that has embraced the high-tech ground of its era has generally been a leading international player.
If the U.S. loses the high ground of financial technological innovation, coupled with the weakening of the dollar’s global dominance, the benefits to Beijing would be enormous.
China’s different approach to privacy gives it a competitive advantage. The US and Europe must satisfy privacy concerns that complicate the development of CBDC. On the other hand, Beijing sees the digital Yuan as a way to further strengthen the existing state of scrutiny, while at the same time improving its ability to fight against money. -money, corruption, and terrorist finance.
In a recently published paper published by CNAS, authors Yaya J. Fanusie and Emily Jin capture the depth with which China understands the geopolitical importance of their digital money project. They tell how Yao Qian, head of the People ‘s Bank’ s Digital Money Research, compared the progress of his country ‘s digital currency with previous Chinese advances in robotics, big data, and artificial intelligence.
Speaking ahead of the UN information technology conference, “Yao launched digital money as part of the‘ next war, ’” the authors wrote, referring to an article of that title in The Economist who considered a key technological position in the US-China competition.
The Fed is concerned about being too lazy in introducing digital dollars, as the pledges are the world’s reserve currency. The greatest geopolitical threat, however, is as soon as it finally falls.
The U.S. can still win this competition if it not only rapidly develops a digital dollar, but collaborates on the creation of a digital euro, a digital pound, and a digital yen. The total firepower of these currencies would quickly close the innovation gap. It would also show the value of working with friends, a key part of Biden’s foreign policy.
Frederick Kempe is a best-selling author, award-winning journalist and president & CEO of the Atlantic Council, one of the most influential think tanks in the United States on global issues. He worked for The Wall Street Journal for more than 25 years as a foreign journalist, regulatory editor and as the longest-serving editor in the European edition of the paper. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a favorite of the New York Times bestseller and was published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his look every Saturday on the main stories and trends of the past week.
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