China’s digital yuan displaces the dollar
asiatimes.com
asiatimes.com
More. EU wants to trade with Iran as well, the reason for introduction sanctions against Iran after the deal was made and was honored by Iran is hard to understand from the European perspective. But no bank will violate US sanctions and risk to be excluded from SWIFT. Digital Yuan and some other solutions like this (EU is working on a similar solution) might change all of this.
Theoretically if the EU wanted to trade with Iran or if China wanted to sell gas to China...they can do it
The US will notice it and would block that bank access to USD and close that bank US branch if they have any.. but they can subsequently continue in RUB, EUR, CNY..
For a bank losing the ability to loan to US customers or do retail business in the US is not a big deal....the very huge problem is that you won't be able to access the US bond markets and the US equity markets. The ability to buy and sell the world's best debt: the mighty US treasuries goes away.
No bank survives that.
SWIFT is not special, it just saves time to the FBI and the NSA...but if SWIFT were to lose its relevance due to Central Banks Digital Currencies, then the US will still know that you violated sanctions and you'd still be immediately blacklisted and sanctioned yourself
Digital currencies such as the digital yuan or the digital euro will have 6-12 months of free reign before those same countries which make up SWIFT come together again to agree on the same principles behind SWIFT (the ability to inspect etc). The Central bank of an other country can be too big to sanction (opposed to a commercial bank) but the new framework will require that the identity of those who made the transaction are targeted.
So with the new Central Bank Digital Currency regime the sanction and blacklist doesn't hit the whole commercial bank (because the transaction won't be facilitated by the commercial bank but by a Central Bank) but directly the person or the company violating the US sanctions.
In the end the ability that the US has to sanction and be the world police comes from the strenght of the US economy and the might of the US military as well as the power of US intelligence. The balance of power with regards to that hasn't changed
The centrality of the US also stems from its connectivity. There used to be a time when intra-European Internet traffic would be routed through the US, even though the EU economy was larger than the US’ pre Brexit.
The second Boer war[1] is often seen by historians as the one event that precipitated the fall of the British empire [2][3][4]
[1]https://en.wikipedia.org/wiki/Second_Boer_War
[2]https://sci-hub.se/10.2307/42894929
After that point, the British Empire was dead, but it took another 15 years for it to be self-evident to the British themselves.
If you have "smart contracts" to pay on delivery rather than paying in advance with a bank loan.
How does this work? Won't companies still need to generate revenue to pay for the goods?
There's mention of 5G but 4G can do contracts?
They also say China's goal is not to be a reserve currency but something new, completly different from banking since the 13th century.
But I dont think they explained how, unless I missed it
1. State/progress information provides more trust as more progress information becomes available, and therefore less trust is needed from financial instruments such as escrow. Much of the new information is provided via 5G and the internet.
2. The US has derived enormous benefit from these financial instruments, since they often provided the US with an interest-free loan as a side effect. As these instruments are less needed, less money will be lent to the US on these terms, so the US needs to either borrow less or pay for interest-bearing loans like the rest of us.
3. The US federal government doesn't understand what's coming.
(I disagree with one of the points. The above is a summary, not my opinion.)
Certainly China will also be able hide more money printing behind the app. They can give out Digital Yuan as stimulus unlimited and no one would know any better.
https://thesoundingline.com/kyle-bass-china-has-printed-more...
https://thesoundingline.com/chinas-money-supply-has-outgrown...
What if it is actually true that China doesn't want to be a reserve currency and own seniorage from the rest of the world? (As Chinese leaders repeatably have said.)
What if they instead want better credit mechanisms, risk controls and logistics? So credit creation can be backed by future oil produced by Iran, future jet planes produced by Russia, future phones produced by China. And trade can be settled with very little actual central bank currency moving around.
What if it is actually true that China won't militarize reefs in the South China Sea or encroach on Hong Kong's autonomy, as Chinese leaders repeatedly said?
Oh, wait...
Today, people ship little things in their containers that report e.g. temperature aberrations, so when you take delivery of something you can see whether it's been cooled continuously. The article is saying that these things will instead report temperature (and other things) online, so you can monitor the temperature in each container of your mango/yoghurt/fish/… shipment in real time.
If you as buyer don't want to, why would the seller care? But if you want to sell to a buyer who's used to that from many other sellers, you might have a problem. So Chinese technology replaces dollar escrow.
If the need for escrow diminishes because trust is provided in other ways, then it doesn't really matter to the escrow agency which currency the former customers now use to settle their purchases.
This second scenario you won't have your money stalled for months while paying for it.
tldr;
> Direct access to central banks will allow tech-enabled non-banks to offer payment services
> In the most disruptive case, banks lose deposit base, [and] credit creation [is] funded [directly] by central bank
> fintech transformation of the global payments system will bypass the banking system [predominantly in dollars]
Digital currencies, as backed by central banks, are just fiat currencies on a digital ledger.
Suppose you were involved in a financial war. Could there have been a better setup for the adversary’s victory than the domestic spending plans of 2020/21? The people who vote for these measures can’t possibly be ignorant of the situation.
Regarding financial crime enforcement, I believe that it can be done in a way that strengthens the currency. Generally that means eliminating activity which is net negative for the economy (the other holders of dollar-denominated assets), including the cost of compliance and lost opportunity for commerce. Right now, a common view is that it is overreaching, although this view may be ignorant of all the terrible things it is preventing. Regardless, we are now in competition on this aspect of our monetary system as well.
One thing is what is happening internally in China's yuan economy. That really doesn't threathen the status of the USD.
Another thing is whether better logistics, credit extension backed by assets (such as a partially manufactured product from a factory) would do the demand for holding cash (which would be mostly dollars) in international trade.