China Creates Its Own Digital Currency, a First for Major Economy
wsj.com
wsj.com
Yikes, that is a lot of power. Been an ideological Bitcoin holder/gold bug/physical cash fan for quite some time now. The sophisticated mechanisms that Central Banks have to control the economy/money seems dangerous in shortsighted democracies, and nightmarish in more authoritarian states.
No anonymity in financial transactions makes it easier to catch drug dealers and tax evaders. The ability to control the money supply will keep the economy healthy (theoretically). Only problem is the ability of communities/individuals to economically resist national governments is so thoroughly squashed that citizens are turned into subjects when the nations elites decide subjugation is a good idea.
Dirty secret of politics is that rights become inalienable in the same way boxers become champions. By winning a lot of fights.
Second, even if what you say comes to pass, so what? If I'm into crypto because of independence from governments, how does what you're suggesting make me any more interested in using that currency?
US dollars are just rows in a distributed database. The database is distributed over a network of banking nodes. The network is highly concentrated [1], and its super-nodes are already very difficult to distinguish from government in anything but a formal legal sense.
Insofar as I can tell, a digital currency would be the same thing as government saying "banks need to provide unrestricted access to their networks" which has basically happened already.
https://www.npr.org/sections/money/2019/08/27/754323652/the-...
Main thing that worries me is the sophistication of the control. What I do not want is all economical activity to be corralled into a financial system where states/bankers can see every transaction, take your assets at a key press, and destroy your savings.
State backed currencies seem like a good idea, so do legal alternatives and anonymous payment options like physical cash.
It's actually a pretty brilliant policy that strikes a good middle-ground between giving individuals stake in the country without losing sight of the public interest to maintain control of land ownership.
This sort of combination between state control and individual ownership is vastly preferable to the patrimonial wealth acquisition in the US, which gives private interest groups extraordinary power at expense of both individuals and society at large, and it's an effective mechanism against generational inequality and it avoids creating a society dominated by heritage.
The claim that chinese citizens had no way of gaining wealth is fundamentally false and kinda absurd. If you look at chinese consumer spending for the last decade it's been growing at 6-8% annually, are you saying all that spending is done by only CCP officials?
IF China is able to successfully export its Super-platforms into the developing world it will provide the means thru which it could supplant the US Dollar with the Digital Yuan as the primary means of exchange with low friction switching costs.
At the moment, Zipf’s Law still applies with the US Dollar still the dominant currency used with the Euro a distant 2nd.
China’s Yuan is still low single digit %.
But this could change rapidly if China is able to successfully push their domestic super-platforms onto the developing world thru a strategy of One Belt, One Road debt trap diplomacy combined with offering their fellow authoritarians ‘moderator’ within the Chinese ‘administrator’ surveillance framework, and offering users purchasing power stability.
While the decision isn’t binary, if the CCP had to choose between investing in a counter to the US military’s trillion dollar super-carrier battle group sunk cost or adding a billion developing world users for Chinese super-platforms I think the choice is simple.
The latter is cheaper, and ultimately pays for the former.
My thinking is the threat today is low, but the vulnerability looking out a decade+ is extremely high.
Note that wechat and alipay are commercial companies. So having a national digital currency does have benefits
If a tiny country that produced nothing did this, it would be less relevant.
The only reason they're not freely available for anyone to use is that it would make it easier for Chinese citizens to move their money out of the country, which the government doesn't want them to do. The "digital yuan" isn't going to be different in that aspect.
His conclusion?
>All of this stuff can be done conventionally, with the usual banking system. [...] I don’t really buy that central bank digital currencies will dramatically change the nature of money, and I’m not sure why China’s digital yuan would materially affect the global hegemony of the U.S. dollar. But surely central bank digital currencies can be convenient for central banks, and for governments.