China's Digital Yuan not aimed at challenging US dollar, says former People’s Bank governor A former governor of the People's Bank of China has given a speech in which he suggested that China's Digital Yuan is not intended to increase China's influence over global financial systems. Zhou Xiaochuan, who served as the Bank’s governor between 2002 and 2018, spoke on Saturday at the Tsinghua PBCSF Global Finance Forum. …
Based on blockchain? Probably not? It looks like it might be much easier and far less resource intensive to manage a digital currency through a "trusted authority" like the People's Bank of China than through a blockchain protected distributed ledger.
Who's going to trust the PBC? Well, yes, that might well be a problem. Outside of the 18% of humanity that lives in China and presumably wouldn't have all that much choice.
Something to ponder. Which would you trust most -- the PBC, the US Federal Reserve System, Big Tech(e.g. PayPal), or a fancy technology touted by clever but somewhat flawed folks whose mantra is "move fast, break things"?
On the other hand I know very little about either cryptography or economics. Which I suspect puts me one step ahead of experts in those fields. At least I know I'm ignorant.
China would really struggle to replace the dollar. Because having a major international currency has costs as well as benefits. Yes, you have seignorage, which means you can print money and make a small profit - because loads more people want to hold that money. But when you reissue your notes with new designs - you also have to pay to print loads more, because so many are in circulation. You also have to slightly tailor your interest rate decisions, because they have so much more of a global effect. But you can also have more leverage on international businesses in other countries, if they want to trade in dollars. So there's a lot going on.
At the moment China don't even let people freely trade in Yuan. They have exchange and capital controls to try and stop people from getting money out of China - and actually this is one of the reasons they are clamping down on Bitcoin. Because that could be used to circumvent those controls, hence replacing it with their own electronic system. If you can tempt even some people away from Bitcoin by doing that, then you make things harder for the rest - who want to use it to get money out.
China have also been running financial repression for years. This is an economic term, not a political one. It's what our Central Banks have been doing on-and-off since 2008 too. Keep interest rates below inflation, and that forces people to either lose money saving, or invest their money at higher risk, which will hopefully grow the economy faster than if everyone just saved in banks. Or of course persuade them to spend, rather than losing value. In our case it was QE and zero interest rates to avoid post crash (and then Covid) deflation. In China's it's because they have so little healthcare and benefits, so Chinese people have to save for that sort of thing, and old age - and therefore the savings rate was so high that Chinese domestic demand was lower than the Party liked - in order to generate economic growth. As was shown up by the crash in 2007 - where their export markets collapsed.
Since then, if not before, China has been suffering from capital flight. Business people (and Party bosses with their ill-gotten gains), wanting to keep a safe nest-egg abroad. Safe from being seized by the Party - and so China's Central Bank has actually been intervening on the money markets to stop the Yuan from falling in value - not manipulating the currency down as Trump kept complaining. They stopped doing that in about 2005. But you can't be an international reserve currency if you won't let foreigners hold your currency, or let your own people sell it - and it's also pretty tricky to do if you want to control the exchange rates.
They also blocked precious metal purchases (at least for a while) because they were moving/forcing some people over to the digital currency (bills are auto deducted without your permission) that wanted some tangible assets to hold onto. Very interesting and scary way of implementing strict controls on people. Imagine no cash, only digital. No giving the neighbor kid a couple bucks for yard work, no tipping a couple dollars for that good service you got. In a car crash - your expenses are auto deducted from your government account. Doesn't sound great for humans to me.
No, it's true. It's not intended to replace the dollar. It isn't capable. It's designed to provide China with the ability to know what any citizen has purchased and to cut all money off at the push of a button in case they don't like someone. Also can plug into the social credit score system. It's a tool for maintaining their domestic dictatorship, not impinging on international money transfers.
Their plan for changing international money transfers already started last year. It hasn't started very quickly, but it's their tool for the job. This is unrelated.
No one trusts the Chinese government, not even the Chinese. While one might argue that no one trusts the US government, the US dollars in your possesion can't be made to disappear with the ckick of a mouse. At most you can be banned from transferring them via the SWIFT system, which is inconvenient, but not fatal as both Iran and North Korea can attest.
So who is left? Any poor nation that is willing to fall into the Chinese hegemony trap accept Chinese aid which is always constructed so they'll be subservient to China ever after.
"So who is left? Any poor nation that is willing to fall into the Chinese hegemony trap accept Chinese aid which is always constructed so they'll be subservient to China ever after."
Remind me, how much of HS2 did we sell to the Chinese?
That nuclear reactor building program? And other major infrastructure projects funded in part by Chinese money?
Looks like the UK are being subservient to the Chinese forever then :P
China has over a billion dollars of US treasury securities (second only to Japan). They recognize that the Yuan is not about to challenge the US Dollar.
They, among many other countries because of fluctuations in the exchange rates due to US monetary policies, have proposed that an alternative to the USD be officially adopted by the International Monetary Fund (IMF) using the currency basket (XDR) based on the IMF's Special Drawing Rights (SDR). The XDR basket consists of the following five currencies: U.S. dollar 41.73%, euro 30.93%, renminbi (Chinese yuan) 10.92%, Japanese yen 8.33%, British pound 8.09%. So even if it was adopted the Yuan would still be a minor player.
The digital Yuan is not an international power play as much as it is an internally focused step. It will allow the government to better monitor its citizens and it will also facilitate commerce within China.
IMO, basically it's closest Western equivalent would be a debit card issued by the central bank.
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