Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

China Ups Ante in War on Cash With Rollout of Digital Currency

  by    0   5

The Chinese government has launched a pilot program for a digital version of the yuan. The virtual currency ups the ante in the war on cash and creates the potential for the government to track and even control consumer spending. It also raises some concern that the Chinese could threaten dollar-dominance.

The digital currency is nothing more than a virtual banknote or coin that exists in a digital wallet on your smartphone instead of a billfold or a purse. The value of the digital currency is backed by the state, just like traditional fiat currency.

The program kicked off in April with a limited rollout in the cities of Shenzhen, Suzhou, Chengdu, and Xiong’an. According to Bloomberg, some of the money was distributed in the form of transport subsidies paid to individuals in Suzhou.

Even with the limited rollout, Chinese digital currency is still a long way from full adoption. People’s Bank of China governor Yi Gang said recently said, “There’s no timetable for an official launch.”

Why is China so eager to roll out digital yuan?

Ultimately, it’s all about control.

The government can easily track digital payments. As Bloomberg put it, digital currency “offers China’s authorities a degree of control never possible with physical money.” Specifically, a digital currency might allow the Chinese government to more closely monitor mobile app purchases,  accounting for about 16% of the country’s GDP. Bloomberg describes just how much control a digital currency could give Chinese officials.

The PBOC has also indicated that it could put limits on the sizes of some transactions, or even require an appointment to make large ones. Some observers wonder whether payments could be linked to the emerging social-credit system, wherein citizens with exemplary behavior are ‘whitelisted’ for privileges, while those with criminal and other infractions find themselves left out. ‘China’s goal is not to make payments more convenient but to replace cash, so it can keep closer tabs on people than it already does,’ argues Aaron Brown, a crypto investor who writes for Bloomberg Opinion.”

Governments around the world have quietly waged a war on cash for years. Back in 2017, the IMF published a creepy paper offering governments suggestions on how to move toward a cashless society even in the face of strong public opposition. Governments and central bankers claim moving toward a cashless society will help prevent crime and will boost convenience for the average citizen. But the real motivation behind the war on cash is control over you. We got a first-hand look at what happens when governments restrict access to cash when India plunged into a cash crisis after the country’s government enacted a policy of demonetization in November 2016.

It’s easy to shrug off China’s experimentation with digital currency as something going on “over there,” but US policymakers like the idea too. In fact, they have already toyed with the idea of a digital dollar. A Democratic proposal for stimulus payments in the wake of the coronavirus pandemic featured digital currency deposited into digital wallets. Some officials admitted it would potentially allow the government to control how the money was spent.

There is also concern that a Chinese digital currency could eventually threaten dollar-dominance. If nothing else, it could limit America’s ability to weaponize the dollar.

Aditi Kumar and Eric Rosenbach of the Harvard Kennedy School wrote an article published by  Foreign Affairs warning that the digital yuan could weaken the US geopolitically.

The advent of digital currencies will degrade the efficacy of US sanctions, limiting the country’s options to respond to national security threats from Iran, North Korea, Russia, and others. It will also hamper the ability of US authorities to track illicit financial flows. And China, meanwhile, will use the combination of its digital yuan and strong electronic-payment platforms (such as Alipay and WeChat) to expand its influence and reinforce its capacity for economic coercion in Africa, the Middle East, and Southeast Asia.”

Widespread adoption of the Chinese currency could even threaten the dollar’s position as the reserve currency. With the Federal Reserve running the dollar printing press at full speed and the US government expanding the national debt into the stratosphere, there are renewed calls for a currency to replace the dollar as the world reserve.

But former Treasury Secretary Henry Paulson wrote that those fears are overblown and that the Chinese threat to the dollar is “not a serious concern.” He argues that even if a digital yuan proves to be highly mobile around the world, the dollar remains widely trusted. More significantly, oil and other key commodities are still priced dollars.

Of course, there is no guarantee that will last forever. In late 2017, China announced the launch of a gold-backed, yuan-denominated oil futures contract. The move potentially creates a way for oil exporters to circumvent US dollar-denominated benchmarks by trading in yuan. The contracts will be priced in yuan, but convertible to gold.

There is also a strong appetite for a secure international payment system outside of the dollar-dominated SWIFT system. Matthew Graham, chief executive officer of Sino Global Capital, a Beijing-based consultant on blockchain, told Bloomberg China may enjoy some advantage by being the first country to roll out a digital currency.

It’s very possible that other countries adopt the China framework, and then a first-mover advantage turns into a strong network effect. This is the best-case scenario for China.”

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Several States Consider Repealing Sales Tax on Gold and Silver Bullion

Several states are considering bills to repeal the sales tax on precious metal bullion during the 2022 legislative session. Passage into law would relieve some of the tax burdens on investors, and would also take a step toward treating gold and silver as money instead of as commodities.

READ MORE →

Fed Still Pouring Gas on the Inflation Fire; What Happens When It Tries to Stop?

The Federal Reserve wrapped up its first Federal Open Market Committee meeting of the year yesterday without any real surprises. Despite everybody screaming about an inflation problem, the Fed will keep its loose, inflationary monetary policy in play for at least two more months.

READ MORE →

World’s Largest Gold ETF Sees Record Inflows

The world’s largest gold ETF saw record inflows on Friday, a bullish sign for the yellow metal. SPDR Gold Shares (GLD) ranks as the world’s largest gold fund. It saw a net inflow of $1.63 billion on Friday. It was the largest net inflow in dollar terms since the fund was listed in 2004.

READ MORE →

War on Cash: The Digital Dollar

Last week, the Federal Reserve released a “discussion paper” examing the pros and cons of a potential US central bank digital dollar. According to the Federal Reserve press release, the central bank hopes to get public feedback on the idea. “We look forward to engaging with the public, elected representatives, and a broad range of […]

READ MORE →

The Federal Reserve Is a Money-Making Enterprise

The Federal Reserve is a money-making enterprise. This probably shouldn’t come as any surprise, given that the central bank can create money out of thin air and buy yielding assets. Still, the Fed rakes in a staggering amount of money. The central bank recently released its unaudited preliminary financial statement for 2021.

READ MORE →

Comments are closed.

Call Now