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China’s Digital Yuan Sends Message But Europe, U.S. Asleep At The Wheel

By Andy HechtCryptocurrencyApr 19, 2021 07:24AM ET
www.investing.com/analysis/chinas-digital-currency-sends-message-but-europe-us-asleep-at-the-wheel-200573825
China’s Digital Yuan Sends Message But Europe, U.S. Asleep At The Wheel
By Andy Hecht   |  Apr 19, 2021 07:24AM ET
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This article was written exclusively for Investing.com

  • China prepares to unleash a digital currency with domination plans
  • US and Europe: asleep at the wheel
  • Control of global money supply paves the way towards China’s goals
  • The RMB is not a convertible currency; a digital RMB could be a different story
  • A digital dollar and crypto euro are no longer a luxury but a necessity

Digital finance or fintech is a natural extension of the technological era. Over the past four decades, technology has changed our lives. In the 1970s, a computer had lots of tubes housed in a cold room. Today, we carry around more computing power in our back pocket with a smartphone. That phone also includes a professional camera, high-speed internet access, maps, and many other devices that replace products.

Digital currencies burst on the scene around 2010, but most of us didn't notice the emergence of Bitcoin. At six cents per token, mining for Bitcoin seemed like a video game. At over $62,000 per token as of last week, it was far from a game with over 9,260 other tokens circulating and the asset class’s market cap over the $2.247 trillion level.

Digital currencies are the future. However, they create problems for governments that control the money supply. Money creates power, so central banks, monetary authorities and governments are not excited about this new asset class that seeks to replace money with a technological alternative.

Still, it won't be long before they capitulate and reach a happy medium by rolling out their own digital currencies. China looks to be the first country to do so, on the verge of a digital yuan, which fits right in with the Asian nation's goal of domination for its currency as well as for the world’s second largest economy and the largest population.

China prepares to unleash a digital currency with domination plans

Bitcoin and most of the other 9,266 cryptocurrencies are decentralized, meaning they are a global means of exchange that transcend borders. They are not controlled by any central authority such as a central bank, monetary authority, or government.

The crypto asset class’s philosophy along with its devotees, are libertarian, which embraces liberty as a core principle. While the rise of the digital currency asset class reflects technological advances and the blockchain’s central element, it also represents mistrust of central authority control of the money supply.

China is the world’s most populous nation with the second largest economy. President Xi Jinping plans to become the world leader. In 2014, the Chinese began working on a national digital currency, recognizing the burgeoning asset class’s potential growth.

Unlike the other cryptos, the Chinese version is on the cusp of being issued as a digital yuan or Digital Currency Electronic Payment (DCEP) controlled by the PBOC, the People’s Bank of China, the Sino central bank. Distribution will be via a two-tiered system.

The PBOC will distribute the digital yuan to commercial banks responsible for getting the currency into the hands of consumers. China has been pushing for the internationalization of its currency over the past years. Then digital yuan could expedite the process.

The PBOC has worked with central banks from Thailand, United Arab Emirates, and Hong Kong to explore a cross-border digital currency payment system. The group is exploring the use of distributed ledger technology.

US and Europe: asleep at the wheel

Meanwhile, the US and European governments appear far behind China in embracing the currency market’s evolution. US Treasury Secretary Janet Yellen has called Bitcoin an “extremely inefficient” way to conduct monetary transactions. She has highlighted the digital currency’s use for “illicit finance.”

Christine Lagarde, the European Central Bank President, has said that central banks will not be holding Bitcoin as a reserve currency and highlighted what she called “funny business,” stressing the rising need for regulations.

What Secretary Yellen and President Lagarde did not say is that digital currencies are a direct challenge to the government’s control of the money supply. Power comes from purse strings, so cryptocurrencies pose an immediate threat.

While the Chinese have recognized the technological transformation underway, the US and Europe have yet to embrace technology. The development of a digital dollar or crypto euro remains far behind China’s efforts.

Control of global money supply paves the way for China’s goals

A digital yuan will not undermine China’s control of the money supply since the PBOC would have authority over that means of exchange. However, as the first country to bring a digital version of its currency to the market, China will enhance its goals of rising to become the leading economy with significant global influence. A digital yuan that becomes the currency of choice worldwide, even outside the US and Europe, could substantially impact international finance while potentially undermining the US dollar's postion as the global reserve currency.

Meanwhile, Russia is working on a digital ruble as President Vladimir Putin and President Xi realize that greater impact on the global purse strings leads to increased power.

A digital payment system’s speed and efficiency could cause commodity producers and consumers worldwide to use a digital yuan or digital ruble when they emerge. China and Russia are powerful commodity-producing nations, and China’s population makes it the world’s leading raw material consumer. China and Russia together could dictate terms that support the use of their digital currencies for international, cross-border transactions.

While there is no word that the US or Europe are working on their own digital currencies in order to pursue the Chinese and Russian efforts, the Biden Administration is stepping up scrutiny of China’s plans. A digital yuan could be the first step toward replacing the dollar as the world’s reserve currency. President Xi would like nothing better than to do that, supplanting the dollar and controlling the global financial system with a digital yuan that dominates international trade.

The RMB is not a convertible currency; a digital RMB could be a different story

One of the problems facing China over the past years has been balancing the control of its currency with allowing its value to float freely, permitting it to become totally convertible without restrictions. The dollar and euro are freely convertible currencies, creating the liquidity necessary to attain reserve currency status.

A digital RMB that becomes a world currency could solve China’s control problems. With China’s central bank, the PBOC, in control, the digital currency could become freely convertible, experience the benefits of distributed ledger technology, and allow for constant monitoring and regulation of the flow of funds worldwide.

The more ubiquitous the digital yuan becomes, the more power and information the Chinese government will have at its fingertips. Making the digital yuan fully convertible to other traditional and digital currencies will provide the data that increases financial power.

Companies like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA), Facebook (NASDAQ:FB), and many other technology leaders have profited from data accumulation and artificial intelligence that understands and manipulates consumer trends. China’s ability to roll out a digital currency that competes with the dollar, euro, and other world foreign exchange instruments could yield the same kinds of benefits the tech companies enjoy.

Dominant positions in the industry because of data for the tech companies could translate to a dominant role in world trade and influence for the Chinese if the digital yuan becomes the world’s reserve currency.

A digital dollar and crypto euro are no longer a luxury but a necessity

Last week, Bitcoin and Ethereum prices rose to new highs, pushing the digital currency asset class’s market cap over the $2.247 trillion level.

BTC/USD Weekly
BTC/USD Weekly

Source all charts: CQG

The chart above shows that Bitcoin rose to a new high at $65,520 on Apr. 14 and was trading near the high ahead of the weekend.

Ether Futures Daily
Ether Futures Daily

Ethereum hit a new record peak at $2,572.75 on Apr. 16 just weeks after CME futures trading began. Last Wednesday, Coinbase (NASDAQ:COIN), a US-based digital currency platform, went public in a highly successful direct listing. The rise of the asset class is a sign that technology will not wait for laggards. While the asset class may reject government control of its tokens, regulators and leaders can exert influence via laws, ordinances, statutes, and restrictions on businesses.

Meanwhile, it is a national security imperative for the US and Europe to keep pace and surpass Chinese efforts to issue a digital currency. A Chinese victory in the digital currency arena that boosts the yuan’s role as a leading reserve currency would have substantial ramifications for the balance of world power.

China’s efforts in digital currencies are sending a message to the halls of power in the US and Europe that has wide-ranging consequences for the world’s future. A digital dollar and crypto euro that embrace blockchain technology are not a luxury anymore. Rather, they're now a necessity.

China’s Digital Yuan Sends Message But Europe, U.S. Asleep At The Wheel
 

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China’s Digital Yuan Sends Message But Europe, U.S. Asleep At The Wheel

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Comments (28)
Lawrence Dama
Lawrence Dama Apr 22, 2021 7:47AM ET
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EU maybe stupid enough to let ECB create one and undermine EU banking system but the US never will. You don't seem to understand how small banks  create jobs, small business and real long term   wealth in China Germany and USA
Shane Gg
Shane Gg Apr 20, 2021 11:08PM ET
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Nothing says dystopia like getting rid of cash which can be exchanged person to person privately and instead using a digital currency which maintains a ledger which can be tracked perpetually for every single transaction. People think crypto is a good thing. It's the worst kind of control and being embraced by more and more people every day.
Stephen Fa
Stephen Fa Apr 20, 2021 11:08PM ET
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Monero and Zcash privacy coins
Shane Gg
Shane Gg Apr 20, 2021 11:08PM ET
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Stephen Fa  And when governments ban those?
Bhusal Ghan Lal
Bhusal Ghan Lal Apr 20, 2021 8:41PM ET
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Hello i am Bhusal i am new here any one can help me
Ebuka bobo
Ebuka bobo Apr 19, 2021 9:04PM ET
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Hello I am rita i am new here
Ebuka bobo
Ebuka bobo Apr 19, 2021 9:03PM ET
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Hello
DrFunkenstein hayson
DrFunkenstein hayson Apr 19, 2021 4:32PM ET
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you don't want anything coming from China especially surveillance currency that tracks your every move and can be shut off by a disgruntled politicians whim
David David
David9 Apr 19, 2021 4:32PM ET
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It doesn't matter if you want it or not.... it is coming like a storm...
Kevin McCarthy
Kevin McCarthy Apr 19, 2021 3:07PM ET
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crypto is an amazing technology. the problem is it's being wasted by scammers trying to sell it as a digital currency and syphon wealth from people. what it should be, is at the heart of cyber security. sad that you are perpetuating the scam and not pointing out that crypto has a price but no value.
Andrey Glushchenko
Andrey Glushchenko Apr 19, 2021 2:14PM ET
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bravo ! its just a question of time
me ish
me ish Apr 19, 2021 12:54PM ET
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no one with any interest in human rights or liberty would accept anything to do with China - I stopped buying chinese products years ago - everything you buy from China is a boost to the Chinese dictatorship - we should all be stopping buying chinese goods and buy from other SE Asian countries such as Taiwan or South Korea. decentralised crypto currency is the only way forward - it give back power to each and every individual on the planet to not have money (purchasing power) being stolen from them - once people realise this, they will invest in decentralised crypto - it is a massive change on the planet, bigger than most people can even possible conceive - as big as the internet is now compared to 1984 (that year deliberately chosen as that is what we'll get if China has its way - an Orwellian dystopia where everyone's entire life is monitored through every expenditure.)
Don Kruuz
Don Kruuz Apr 19, 2021 12:03PM ET
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What a racist article? Only the US can prosper and no one else? CFA my a””, can’t be one with a closed mind
mike mike
mike mike Apr 19, 2021 12:03PM ET
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Racist? Not even close, stop watching CNN. The more appropriate term is nationalistic.
Hassan Salloum
Hassan Salloum Apr 19, 2021 12:02PM ET
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The war on cash is a war on freedoom... Unfortunatly, the clear truth we have is that there will be no cash in the future. About the global currency i think it will be the IMF curremcy
Suply Khamis
Suply Khamis Apr 19, 2021 12:01PM ET
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any luck at GBPJPY buy or sell?
eq tu
eq tu Apr 19, 2021 11:46AM ET
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Xrp will be the new standard.
Di Ni
Di Ni Apr 19, 2021 11:46AM ET
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its becoming pretty overt now that xrp is the future.
Mamadou Diallo
Mamadou Diallo Apr 19, 2021 11:40AM ET
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Mamadou Diallo
Kyle Crookshanks
Kyle Crookshanks Apr 19, 2021 11:31AM ET
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I guess Andy hasnt heard about the USA CBDC??
Peter Murton
Peter Murton Apr 19, 2021 11:28AM ET
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Of course Yellen is correct about BTC.  It is extremely inefficient.  The amount of time and electric power required for a simple transaction is laughable.  Imagine needing to wait hours in line at the grocery store for the people ahead of you to cash out at 15 minutes (or much longer) per transaction?! Not mentioned in the article - Presumably the win for China implementing a digital currency has a lot more to do with getting out from under American financial hegemony.  No more needing to run it through a US bank if Huawei wants to sell network equipment to Iran, allowing the US government to declare that transaction between two other sovereign countries illegal.  No more petro-dollar.
eq tu
eq tu Apr 19, 2021 11:28AM ET
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Bitcoin efficient is a laughable statement. Xrp is the secret weapon about to be unlesshed any day now.
David Bowie
Defcon2 Apr 19, 2021 11:24AM ET
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America asleep!? Half the country are a bunch of sleepy Joes!!! So it makes sense.
eq tu
eq tu Apr 19, 2021 11:24AM ET
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No sir we are not asleep. We are more awake than ever.
Kevin McCarthy
Kevin McCarthy Apr 19, 2021 11:24AM ET
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eq tu  you can't vote for President Blackface and pretend you're awake. it doesn't add up.
DrFunkenstein hayson
DrFunkenstein hayson Apr 19, 2021 11:23AM ET
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cbdcs are NOT crypto. they are fiat 2.0 with massive more control and surveillance. they are the antithesis of crypto
Corbet Witter
Corbet Witter Apr 19, 2021 11:20AM ET
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Great Article, you're so right it's only a matter of time. We in the west need to understand that China's plans are normally in place decades before the rest of the world catches on.
eq tu
eq tu Apr 19, 2021 11:20AM ET
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Xrp
Bhuv Ar
Bhuv Ar Apr 19, 2021 11:06AM ET
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Chinese Digital Currency IS NOT THE SAME as Crypto... It is not mined, and China can flip a switch and nullify your account.... It would be extremely unwise for any country adopting it
eq tu
eq tu Apr 19, 2021 11:06AM ET
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Xrp sir
YouTube Account
YouTube Account Apr 19, 2021 11:03AM ET
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Digital government money is for slaves. You want to own some private crypto, that's one thing, but when the programmable CBDCs arrive and are linked to your social credit score, and they put negative interest rates on your account to "incentive" you to spend then forget it. Sadly most people don't understand money and will accept this level of slavery.
PMSF Small
PMSF Small Apr 19, 2021 9:39AM ET
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China released Covid to distract the world so it could further its goals foe world ***including digital currency
David JUSTIC
David JUSTIC Apr 19, 2021 9:39AM ET
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hell yea, meanwhile US doesn't allow CDC and the world to examine its laboratory
me ish
me ish Apr 19, 2021 9:39AM ET
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yeah the Wuhan Gain of Function coronavirus testing was entirely paid for by the US National Institute of Health and fully endorsed and sponsored by Fauci - the US are as deep in this as anyone - whilst Gates was hosting a pandemic forum just two months in China before the first case was exposed - the whole thing stinks - but the Chinese and US were entirely in this together.
Susan Granados
Susan Granados Apr 19, 2021 8:39AM ET
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Good article and update - addresssed concerns I’ve been having about the future and power of crypto
Larson Leyson
Larson Leyson Apr 19, 2021 8:22AM ET
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Yep, I agree with all that. But China is already in the lead of the world in so many fronts that US won't be able to stop them. They are already the world #1 super power. ok US has a bigger military but that is only good in tradicional wars which with the atomic bomb makes it all or nothing.
F U Modi
F U Modi Apr 19, 2021 8:22AM ET
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China is not leading the world, but I agreed with China is one of the top that growing a lot. On the other hand, China is still learning, and a non-stop learning machine. US and Europe are growing slow, some of the tech that are even out dated compare to China. But overall, I believe China still need 15 years+ to catch up, by then it will be a different story.
eq tu
eq tu Apr 19, 2021 8:22AM ET
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No sir. Xrp is our “secrete” cbdc.
Bac Tinh
Bac Tinh Apr 19, 2021 8:15AM ET
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good coverage
 
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