ECON China Creates its Own Digital Currency, a First for Major Economy

marsh

TB Fanatic

The digital yuan seen on a mobile phone.

The digital yuan seen on a mobile phone. COSTFOTO/BARCROFT MEDIA/GETTY IMAGES

China Creates its Own Digital Currency, a First for Major Economy

A cyber yuan stands to give Beijing power to track spending in real time, plus money that isn’t linked to the dollar-dominated global financial system

By

James T. Areddy
April 5, 2021 10:48 am ET

A thousand years ago, when money meant coins, China invented paper currency. Now the Chinese government is minting cash digitally, in a re-imagination of money that could shake a pillar of American power.

It might seem money is already virtual, as credit cards and payment apps such as Apple Pay in the U.S. and WeChat in China eliminate the need for bills or coins. But those are just ways to move money electronically. China is turning legal tender itself into computer code.

Cryptocurrencies such as bitcoin have foreshadowed a potential digital future for money, though they exist outside the traditional global financial system and aren’t legal tender like cash issued by governments.

China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user.

Beijing is also positioning the digital yuan for international use and designing it to be untethered to the global financial system, where the U.S. dollar has been king since World War II. China is embracing digitization in many forms, including money, in a bid to gain more centralized control while getting a head start on technologies of the future that it regards as up for grabs.

“In order to protect our currency sovereignty and legal currency status, we have to plan ahead,” said Mu Changchun, who is shepherding the project at the People’s Bank of China.

Digitized money could reorder the fundamentals of finance the way Amazon.com Inc. disrupted retailing and Uber Technologies Inc. rattled taxi systems.

That an authoritarian state and U.S. rival has taken the lead to introduce a national digital currency is propelling what was once a wonky topic for cryptocurrency theorists into a point of anxiety in Washington.

Asked in recent weeks how digitized national currencies such as China’s might affect the dollar, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have said the issue is being studied in earnest, including whether a digital dollar makes sense someday.

The dollar has faced challengers before—the euro, to name one—only to grow more important when rivals’ shortcomings became apparent. The dollar far outstrips all other currencies for use in international foreign-exchange trades, at 88% in the latest rankings from the Bank for International Settlements. The yuan was used in just 4%.

Digitization wouldn’t by itself make the yuan a rival for the dollar in bank-to-bank wire transfers, analysts and economists say. But in its new incarnation, the yuan, also known as the renminbi, could gain traction on the margins of the international financial system.

It would provide options for people in poor countries to transfer money internationally. Even limited international usage could soften the bite of U.S. sanctions, which increasingly are used against Chinese companies or individuals.

Josh Lipsky, a former International Monetary Fund staffer now at the Atlantic Council think tank, said, “Anything that threatens the dollar is a national-security issue. This threatens the dollar over the long term.”
A customer pays using the digital yuan at a department store in Beijing. Some people were given small amounts of the digital currency to test it.

A customer pays using the digital yuan at a department store in Beijing. Some people were given small amounts of the digital currency to test it.
PHOTO: VCG/GETTY IMAGES

The digital yuan resides in cyberspace, available on the owner’s mobile phone—or on a card for the less tech-savvy—and spending it doesn’t strictly require an online connection. It appears on a screen with a silhouette of Mao Zedong, looking just like the paper money.

In tests in recent months, more than 100,000 people in China have downloaded a mobile-phone app from the central bank enabling them to spend small government handouts of digital cash with merchants, including Chinese outlets of Starbucks and McDonald’s.

“It’s pretty good,” said Tao Wei, a young woman in Beijing, after spending a test allotment. It took her just an instant to pay for her two-year-old daughter’s birthday portrait by pointing her iPhone toward a scanner. The Chinese Communist Party has also let members settle monthly dues with digital yuan.

China has indicated the digital yuan will circulate alongside bills and coins for some time. Bankers and other analysts say Beijing aims to digitize all of its money eventually. Beijing hasn’t addressed that.

Digitized money looks like a potential macroeconomic dream tool for the issuing government, usable to track people’s spending in real time, speed relief to disaster victims or flag criminal activity. With it, Beijing stands to gain vast new powers to tighten President Xi Jinping’s authoritarian rule.


China's New Digital Currency Is Easy to Use but You'll Be Watched

China's New Digital Currency Is Easy to Use but You'll Be Watched

China's New Digital Currency Is Easy to Use but You'll Be Watched

The WSJ traveled to Chengdu, China, to see the money revolution in action. Photo: Lorenz Huber for The Wall Street Journal

Elements of this kind of control already exist in China, as digital payments have become the norm. Mr. Mu has said the central bank will limit how it tracks individuals, in what he calls “controllable anonymity.”

The money itself is programmable. Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump start

It’s also trackable, adding another tool to China’s heavy state surveillance. The government deploys hundreds of millions of facial-recognition cameras to monitor its population, sometimes using them to levy fines for activities such as jaywalking. A digital currency would make it possible to both mete out and collect fines as soon as an infraction was detected.

A burst of cash-accumulation in China last year indicates residents’ concern about the central bank’s eye on every transaction. Song Ke, a finance professor at Renmin University in Beijing, told a recent conference that China’s measure of yuan in circulation, or cash, popped up 10% in 2020.
What about volatility? Cryptocurrencies such as bitcoin are famous for that. But the People’s Bank of China will strictly control the digital yuan to ensure there aren’t valuation differences between it and the paper bills and coins.

That means it won’t make sense for investors and traders to speculate in the digital yuan as some do with cryptocurrencies. Anti-counterfeiting measures will be designed to make it impossible for anyone besides the People’s Bank of China to create new digital yuan.

While China hasn’t published final legislation for the program, the central bank says it may initially impose limits on how much digital yuan individuals can keep on their person, as a way to control how it circulates and provide users a dose of security and privacy.

China’s central bank won’t use the new technology as a way to get more money into circulation, since every yuan issued digitally will essentially cancel one yuan circulating in physical form.

The People's Bank of China will control the value of the digital yuan. The PBOC building in Beijing.

The People's Bank of China will control the value of the digital yuan. The PBOC building in Beijing.
PHOTO: QILAI SHEN/BLOOMBERG NEWS

When bitcoin launched in 2009, most nations’ policy makers largely played down its significance. China paid attention.

Always hypervigilant to threats, the leadership feared that a cryptocurrency could undermine government power if people began using it in earnest. Zhou Xiaochuan, China’s top central banker from 2002 to 2018, has said bitcoin both dazzled and frightened him. In 2014, he launched a formal study for a possible Chinese digital currency.

China hardly looked like a currency pioneer. Its strict government control of the yuan, for instance, ran counter to the rip-roaring trade in other major currencies.

At the same time, a financial-technology revolution was under way in China, with the frenetic adoption of the AliPay and WeChat apps making cash mostly unneeded, and turbocharging startup companies with ways to pay on the go.

Then, in mid-2019, Facebook Inc. said it would pursue its own cryptocurrency. The realization this could circulate in a user base far bigger than any national population brought immediate recognition that technology could upend traditional currencies.

While U.S. regulators focused on stopping Facebook, ultimately succeeding, China accelerated its pursuit of a digitized yuan, launching trials in April 2020.

Suddenly, China’s money moves bore watching. Central bankers from the U.S. and other Western economies fret that what Facebook planned with a digital currency could now be done by China, a powerful government.

“There is a sort of Uber fear,” said a senior European central banker who has spoken to Western counterparts, referring to stress on taxi systems when the ride-hailing company arrived in cities around the world. “You don’t want another country’s currency circulating among your citizens,” the banker said.

The U.S., as the issuer of dollars that the world’s more than 21,000 banks need to do business, has long demanded insight into major cross-border currency movements. This gives Washington the ability to freeze individuals and institutions out of the global financial system by barring banks from doing transactions with them, a practice criticized as “dollar weaponization.”

American sanctions on North Korea and Iran for nuclear programs hobble their economies. Swiss banks abandoned their famous secrecy eight years ago to avoid Washington’s wrath in a showdown over taxes. After the February coup in Myanmar, the U.S. used sanctions to block the movement of top military officials’ financial assets through banks. The Treasury’s database of sanctioned individuals and firms—the “Specially Designated Nationals and Blocked Persons List”—touches virtually every nation on earth.

Beijing is especially discomfited by a fast-expanding part of the sanctions register: more than 250 Chinese names, including politicians the U.S. accuses of atrocities against ethnic minorities or of curtailing freedoms in Hong Kong. Sanctions left Carrie Lam, China’s top official in Hong Kong, with a stockpile of cash in her home because banks feared that accepting her business would risk exposing them, too, to an American freeze.

The digital yuan could give those the U.S. seeks to penalize a way to exchange money without U.S. knowledge. Exchanges wouldn’t need to use SWIFT, the messaging network that is used in money transfers between commercial banks and that can be monitored by the U.S. government.

The chance to weaken the power of American sanctions is central to Beijing’s marketing of the digital yuan and to its efforts to internationalize the yuan more generally. Speaking at a forum last month, China’s Mr. Mu, the central bank official, repeatedly said the digital yuan is aimed at protecting China’s “monetary sovereignty,” including by offsetting global use of the dollar.

In a 2019 war game at Harvard University, veteran U.S. policy makers scrambled to craft a response to a nuclear-missile development by North Korea secretly funded with digital yuan. Because of the currency’s power to undercut sanctions, the participants, including several who are now in the Biden administration, deemed it more threatening than the warhead.

Nicholas Burns, a longtime American diplomat and favorite to be ambassador in Beijing, told the group, “The Chinese have created a problem for us by taking away our sanctions leverage.”

As China’s marketing for the digital yuan kicks into high gear, an English-language animation circulated online by state broadcaster CGTN shows a man in an American-flag shirt knocked out by a golden coin depicting digital yuan.

A VIDEO FROM CHINA’S STATE MEDIA EXPLAINS THE DIGITAL YUAN


“This is one of the building blocks of China’s move toward world market status and greater involvement in setting the framework of the global economy,” the narrator says.

Initially, the digital yuan won’t change significantly how money circulates through China’s financial system. Under the central bank’s direction, the six biggest commercial banks—all government-owned—will distribute digital yuan to smaller banks and to app providers AliPay and WeChat, which are expected to manage sender-recipient interactions.

Unlike electronic transactions today, the digital yuan is designed to move from A to B instantaneously, at least in theory removing a way banks and financial apps profit off fees and brief built-in delays in such handoffs. The only necessary middleman is the central bank. Mr. Mu has said the digital yuan, because it is state-backed, will reduce risks to the financial system posed by China’s dominant payment platforms that are private companies.

When a global TV audience turns its attention to skaters and bobsledders in Beijing’s Winter Olympics next February, authorities are expected to give visiting athletes digital yuan to spend while they are in the spotlight, an indication of ambitions that stretch beyond China’s shores.

Beijing has joined an initiative to develop protocols for the cross-border use of digital currencies, working with the Bank for International Settlements and the central banks of Hong Kong, Thailand and the United Arab Emirates.

A sculpture in Guangzhou represents an ancient Chinese coin and a suanpan, a type of abacus used widely in the past. China has launched a trial of a trial of digitized money.

A sculpture in Guangzhou represents an ancient Chinese coin and a suanpan, a type of abacus used widely in the past. China has launched a trial of a trial of digitized money.
PHOTO: ALEX PLAVEVSKI/EPA-EFE/SHUTTERSTOCK

China’s digital strides draw attention to how the U.S. needs to modernize its own financial infrastructure, according to Kevin Warsh, a former Fed governor now at Stanford University’s Hoover Institution. “If we wait 5 or 10 years, we may well end up with some very bad policy choices,” he said.

More than 60 countries are at some stage of studying or developing a digital currency, according to research group CBDC Tracker. Digital currencies hold some of their biggest potential for the 1.7 billion people globally who the World Bank says lack a bank account. The Bahamas has already issued a digital currency to address financially underserved populations. Some central banks say such currencies would come in handy for families of migrant laborers who make tiny fund transfers that are cumbersome and expensive.

The senior European central banker noted that international person-to-person money transfers can take days and worried that speed and efficiency could eventually make the digital yuan a preferred currency for remittances as countries deepen financial ties with China.

China, with a working model, is offering a ready way for managing digital cash. President Xi last year called for China to seize opportunities to set international rules for digital currencies, much as Beijing has sought to influence and dominate an array of advanced-technology standards such as for 5G telecommunications, driverless cars and facial recognition.

Asked during a recent Senate appearance whether the dollar could be digitized to help the U.S. defend its supremacy, the Fed’s Mr. Powell said researching that question is a “very high-priority project.”

“We don’t need to be the first,” he said. “We need to get it right.”
 

Donghe Surfer

Contributing Member
Lemme simplify that very longgggggggggggggggggg paste.
Digital currencies (not cryptocurrencies) by governments are coming for only 1 reason: haul in the underground economy, which can be a couple percent of GDP to xx% of GDP. It's for tracking people's money. Nothing more, nothing less.
 

Dozdoats

On TB every waking moment
When bitcoin launched in 2009, most nations’ policy makers largely played down its significance. China paid attention.

Always hypervigilant to threats, the leadership feared that a cryptocurrency could undermine government power if people began using it in earnest. Zhou Xiaochuan, China’s top central banker from 2002 to 2018, has said bitcoin both dazzled and frightened him. In 2014, he launched a formal study for a possible Chinese digital currency.
Ya don't say.......
 

Dozdoats

On TB every waking moment
Bump for one of the most significant stories of the year so far ... this is where your Bitcoin dreams are headed IMO.
 

Hfcomms

EN66iq
Bump for one of the most significant stories of the year so far ... this is where your Bitcoin dreams are headed IMO.
Governments simply are not going to allow private digital currencies to steal their thunder. They will jail you or kill you to preserve their monopoly on currency printing. This is going to for force the Fed and the west as a whole to unveil their digital currency before they are ready. But first they have to destroy any sort of trust in private crypto currency. Got popcorn? Digital currency is the wave of the future but it’s their digital currency that they want preeminent.
 

subnet

Boot
Governments simply are not going to allow private digital currencies to steal their thunder. They will jail you or kill you to preserve their monopoly on currency printing. This is going to for force the Fed and the west as a whole to unveil their digital currency before they are ready. But first they have to destroy any sort of trust in private crypto currency. Got popcorn? Digital currency is the wave of the future but it’s their digital currency that they want preeminent.
So many youngsters I work with refuse to believe that truth.
 

ktrapper

Veteran Member
If you can’t hold it in your hand you don’t own it whether it be paper or PMs. Anything digital is subject to hacking and theft.

We are headed in the same direction here in our country. Only a matter of time.

If you don’t want your life completely controlled by your digital masters you best be converting your FRNs into tangible things of value now if you aren’t already.

Whiskey on sale? Buy a case. It’s good as money later.
Junk silver, lead ? ( you know the kind I mean)
Cans of coffee even.
I don’t recommend buying something you wouldn’t use though unless it’s silver.
 

tencup

Senior Member
Ever bought whiskey close to an Indian reservation?....Just left the Wal-Mart near the Apache reservation here in New Mexico....It was cheaper than anything back home, even Beer cheap....30 pack Bud $19
 

marsh

TB Fanatic

China's Digital Yuan Comes With An Expiration Date

SUNDAY, APR 11, 2021 - 12:32 PM
It's been a long time coming, and now it's almost here.

Last August we reported that China's Commerce Ministry had released fresh details of a pilot program for the country's central bank digital currency (CBDC) to be expanded to several metropolitan areas, including Guangdong-Hong Kong-Macao Greater Bay Area, Beijing-Tianjin-Hebei region, and Yangtze River Delta region. This was the inevitable culmination of a process which started back in 2014 when as we reported at the time, "China Readies Digital Currency, IMF Says "Extremely Beneficial".



Fast forward a few months when China's preparations to rollout a digital yuan gathered pace, and we reported in October that China was poised to give legal backing to the launch of its own sovereign digital currency, "cementing its trailblazer status in virtual currencies far ahead of other countries, after already recently experimenting with large-scale trials of actual payments by consumers, which was met with mixed results." Specifically, the South China Morning Post reported that "The People’s Bank of China published a draft law on Friday that would give legal status to the Digital Currency Electronic Payment (DCEP) system, and for the first time the digital yuan has been included and defined as part of the country’s sovereign fiat currency."

The design framework for the digital yuan had been released one year ago on the heels of Facebook's ambitious but disastrous Libra token rollout after founding corporate partners split for lack of confidence in the project and on fears US federal regulators would seek to block it just as they did encrypted-messaging company Telegram's Gram cryptocurrency.

"The draft law would also forbid any party from making or issuing yuan-backed digital tokens to replace the renminbi in the market," the SCMP said.

This in turn brought us to the so-called "Shenzhen case study" when in October of 2020, China became the first nation to hold a trial run of its digital currency, when the government in Shenzhen carried out a lottery to give away a total of 10 million yuan (about $1.5 million) worth of the digital currency (nearly 2 million people applied and 50,000 people actually "won").

The winners were required to download a digital Renminbi app in order to receive a "red packet" worth 200 digital yuan ($30), which they can then spend at over 3,000 designated retailers in Shenzhen’s Luohu district, according to China Daily. After that, they’ll be able to buy goods from local pharmacies, supermarkets and even Walmart.

The idea was to not only test the technology involved, but boost consumer spending in the wake of the COVID-19 pandemic. In short, China is not only subsidizing the centrally-planned economy by manipulating the supply-side of the question- it now can prop up demand by handing out digital currency to anyone (or everyone).

Of course, unlike traditional central bank account-based currencies such as reserves, or decentralized cryptocurrencies like bitcoin, China’s digital currency would be controlled by the country’s central bank and will be instantly made available at a moment's notice to anyone who can receive it.



And since "China's adoption of digital central bank tokens is expected to be seamless as most of the nation's digital payments already pass through companies like TenCent and AliPay and are already very popular in the country", we concluded that "the successful Shenzhen test means that a broad rollout is just a matter of time."

Still, one thing was missing: a stamp of approval by the gatekeeper of not only the global payments system, but the protector of the dollar reserve system, SWIFT. But as two months ago, China got that too: as we reported in February, "SWIFT, the global system for financial messaging and cross-border payments, has set up a joint venture with the Chinese central bank’s digital currency research institute and clearing centre, in a sign that China is exploring global use of its planned digital yuan."

Actually, not just "exploring" but thanks to year of testing and partial rollouts, Beijing was about to become the first country in the world set to launch the digital yuan, and with both the IMF's and SWIFT's blessing, we said that it was "just a matter of months if not weeks."

We were right, because just a few days ago, China's "cyber yuan" became official when the WSJ finally caught up, writing "China Creates Its Own Digital Currency, a First for Major Economy."

While regular Zero Hedge readers are quite familiar with the details and chronology of China's transition to a digital currency, which incidentally is precisely the opposite of a cryptocurrency and has absolutely nothing to do with Bitcoin, a fact which Peter Thiel may want to dwell on a little more next time before making sweep and wrong statements about bitcoin, the WSJ focuses more on the geopolitical reasons of China's currency evolution - as a reminder, thousand years ago, when money meant coins, China invented paper currency, and now the Chinese government is minting cash digitally, in what the WSJ said is a "re-imagination of money that could shake a pillar of American power" - and specifically how to approach a decoupling from the global reserve currency, the US dollar so not only can Beijing avoid the "nuclear option", a weaponized US dollar, but allow countries that the US seeks to punish like Iran, a viable alternative (remember, the enemies of China's enemies - and none is bigger than the US - is China's friend). Here is the WSJ:
The U.S., as the issuer of dollars that the world’s more than 21,000 banks need to do business, has long demanded insight into major cross-border currency movements. This gives Washington the ability to freeze individuals and institutions out of the global financial system by barring banks from doing transactions with them, a practice criticized as “dollar weaponization.”
...
The digital yuan could give those the U.S. seeks to penalize a way to exchange money without U.S. knowledge. Exchanges wouldn’t need to use SWIFT, the messaging network that is used in money transfers between commercial banks and that can be monitored by the U.S. government.
To be sure, a credible alternative to the dollar, reduces the need to hoard the currency for US trade partners which in turn would have profound implications on global saving patterns, from there, global capital flows. The consequences for the perpetual US current account deficit would be unprecedented.

In addition to realigining the global balance of monetary power virtually overnight, China's the digital currency kills another bird with the same binary stone: it allows unprecedented surveillance and supervision over every single transaction.
[The digital yuan is] also trackable, adding another tool to China’s heavy state surveillance. The government deploys hundreds of millions of facial-recognition cameras to monitor its population, sometimes using them to levy fines for activities such as jaywalking. A digital currency would make it possible to both mete out and collect fines as soon as an infraction was detected.
A burst of cash-accumulation in China last year indicates residents’ concern about the central bank’s eye on every transaction. Song Ke, a finance professor at Renmin University in Beijing, told a recent conference that China’s measure of yuan in circulation, or cash, popped up 10% in 2020.
Then there are the myriad boosts to China's ironclad capital controls:
While China hasn’t published final legislation for the program, the central bank says it may initially impose limits on how much digital yuan individuals can keep on their person, as a way to control how it circulates and provide users a dose of security and privacy.
To be sure, none of this is actually new as we have discussed all these nuances of the digital yuan before. What is now, is this blurb in the WSJ article:
The money itself is programmable. Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump start.
And there you have it: the Keynesian wet dream to boost the velocity of mean finally comes true. For the past decade we have joked that it is only a matter of time before central banks slap on an expiration date on every monetary unit in circulation...

1618178356919.png
... to offset the creeping petrification of the monetary system, where negative rates have sparked even more saving and not spending as central banks had intended...


... and where only the threat of money confiscation - which is what a monetary expiration date actually does - can spark aggressive spending, and eventually, runaway inflation.

Well, that's precisely what China is now ready to do... and it's only a matter of time before other central banks follow suit. As a reminder, according to tentative estimates for the rollout of ISO 20022, which is the required universal transaction standard which will make payment in digital currencies possible, we are looking at a 2022 launch date, although China looks ready to go live as soon as this year.

There is one final, geopolitical reason behind China's decision to give its digital currency an expiration date: as Byrne Hobart writes, "programmable money, tied to real-world identities, and universally tracked by a central bank, starts to look suspiciously like a substitute for the consumer of last resort. Every year that China gets richer, domestic consumption plays a bigger role (exports were 26% of China's GDP in 2010, and 18% last year). If domestic consumption can be tightly controlled, then it's a way to not just increase the volume of consumption but to control the variance of demand for the goods China produces. It's not yet enough to match the size and variability of global demand for China's exports, but every year it gets closer."

In short, while the US and China are both talking seriously about decoupling, the digital yuan - which is now a reality - indicates that China's government is not only more effectively planning for it, but will be the first to fully sever all ties with the US... when the moment comes.

Finally, for those who have missed our reporting on this fascinating issue, here again is Rabobank's Wim Boonstra explaining not only why China will be the first country to launch a digital currency but also looking at what happens next:
China Will Be The First Country To Launch A Digital Currency: What Happens Then
  • China may be the first major country to launch a central bank digital currency or CBDC
  • The Chinese CBDC, named DCEP, will strengthen the position of the central bank and help to further modernize the Chinese economy
  • The DCEP will probably also be available for China’s trade partners, to begin with Africa
  • The DCEP may strengthen the international position of the renminbi to the detriment of the euro
  • The arrival of the DCEP should be a strong wake-up call for Western, especially European, policymakers
[See website for rest of article China's Digital Yuan Comes With An Expiration Date | ZeroHedge ]
 

marsh

TB Fanatic
View: https://www.youtube.com/watch?v=FF0kKpdKSNA
12:11 min
Will China’s Digital Yuan Kill the US Dollar?
•Apr 14, 2021


China Uncensored


China is rapidly developing into a cashless society using a new digital currency, called the digital yuan or the digital RMB to overthrow the US dollar and challenge other crypto currencies like Bitcoin. But unlike blockchain technology, China's digital currency will lead to a new era of surveillance and control over the China economy.
 

raven

Has No Life - Lives on TB
oh my god . . . the digital yuan is not going to destroy the Federal Reserve Note.


that's what congress is for.
 
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