/View.info/ I have already written many times that the world’s leading central banks joined the race to create official (national) digital currencies. They are sometimes called central bank cryptocurrencies because the creation and circulation of such currencies must be based on the use of blockchain technologies (chains of distributed ledgers) that underlie private cryptocurrencies such as Bitcoin. However, if in private digital currencies blockchain technology provides anonymity to participants in transactions, in the case of official digital currencies, central banks as financial regulators intend to track all transactions and all their participants. Therefore, the term “cryptocurrency” is not correct when referring to official digital money. It is more correct to call them digital money without the prefix “crypto”.
The last (of the major) central banks to join the race to create official digital currencies was the US Federal Reserve. US monetary authorities have moved from outright rejection of digital currencies in early 2020 to actively supporting the digital dollar project.
Some experts explain such a reversal in the US position by the fact that Washington feels the threat to the dollar from the project to create a digital yuan in China. And there, the idea of creating a digital yuan began to take shape in the middle of this decade. For some time, the development of the Chinese project was classified, and it was officially announced in 2018. China already has good results, and Beijing expects the country to become the first in the world to launch a national digital currency.
Beijing has long hatched plans to make the yuan a global currency that would overtake the US dollar and the euro. These currencies represent the bulk of the world’s international reserves, international trade settlements, foreign exchange market operations, and more. Beijing has had some success in raising the yuan’s international status. For many years, China has been pushing the IMF to recognize the yuan as a reserve currency (a currency in a basket of currencies that sets the Special Drawing Rights (SDR) rate). In 2015, the IMF Board of Directors voted to include the yuan in the SDR basket, and in 2016, this decision came into force. The yuan has become a reserve currency, but only de jure, not de facto. So far, no central bank in the world, with the exception of the Bank of Russia, has large amounts of yuan in its international reserves. According to the IMF, at the end of the first quarter of 2020, the share of individual currencies in the international reserves of the whole world was (%): US dollar – 61.99; euro – 20.05; Japanese yen – 5.70; British pounds – 4.43; Chinese yuan – 2.02.
The yuan has also failed to displace major currencies as a means of international payments. Here is the latest data on the currency structure of transactions through the SWIFT system. In August 2020, the share of the US dollar was 38.77%, compared to 38.99% in August 2018. As you can see, the US dollar, despite constant calls from the leaders of countries and monetary authorities of other countries to push the US currency of international payments, has not lost its positions in the last two years. I will give the figures for other currencies (for August 2020 and August 2018;%): Euro – 36.46 and 34.71; British pounds – 7.00 and 7.35; Japanese yen – 3.46 and 3.44; Chinese yuan – 1.86 and 2.04. As you can see, the Chinese yuan has failed to strengthen, its share in international settlements has even decreased by 0.18 percent in two years.
To some experts, it seems that Beijing wants to make a “horse move” with the help of the digital yuan. These experts believe that its goal is to become a major means of international payments. Today, most of the international payments (and not only in US dollars) are controlled by Washington.
First of all, the Fedwire system goes through all dollar transactions. Even if, for example, two companies in Russia pay each other in US dollars, they must go through the Fedwire system, which is under US jurisdiction and controlled by the Federal Reserve.
Another system of great international importance is CHIPS (Clearing House Interbank Payments System). It is an interbank electronic clearing payment system designed for large transfers. CHIPS is a private telecommunications clearinghouse under US jurisdiction.
And finally, the well-known SWIFT (Society for Worldwide Interbank Financial Telecommunications) system. Although it is registered in the European (Belgian) jurisdiction, however, Washington effectively controls this system. For example, the US has blocked Iranian bank transactions through SWIFT. For several years, Washington has been threatening Russia and some other countries, including China. These threats were the catalyst for Beijing to accelerate the development of the digital yuan. Although Beijing does not advertise it, it needs the digital yuan for international agreements to escape the sword of Damocles of US sanctions. Because in the digital yuan project, the channels through which this currency can move are important above all. And these are internet channels. Beijing expects other countries to rush to use these channels as well, which will require them to choose the digital yuan as a payment currency. Russia, Iran and North Korea, which are under economic sanctions from Washington, are already showing particular interest in the digital yuan. It is noteworthy that the full name of the People’s Bank of China project is Digital Currency / Electronic Payment.
Washington is nervous about China’s challenge. The statement by the head of the Beijing-based investment company “Sino Global Capital” Matthew Graham, made in July this year, was very noisy. The Central Bank of China’s digital currency will be able to compete with the dollar, Matthew Graham said. According to him, the introduction by the Chinese government of new technologies in the financial system will help to free itself from the hegemony of the American currency.
The main developer of the digital yuan project is the People’s Bank of China (PBC), which has entered into agreements with four state-owned banks on this project: Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China and Bank of China. Three telecommunications companies participated in the project – “China Telecom”, “China Mobile”, “China Unicom” and the well-known IT corporation “Huawei”. The aforementioned state-owned banks converted part of their Central Bank deposits into digital currencies and identified sectors of the economy to promote it. Banks have also been tasked with trialling digital currency storage wallets. The development is carried out in cooperation with the operators of the AliPay and WeChat payment systems. In May 2020, the People’s Bank of China introduced a national digital currency (salary payments, payment of goods and services) in four regions of the country as part of a pilot program. According to Chinese media, the testing of the digital yuan involves 19 retailers from the catering, commerce and entertainment sectors. These include Starbucks, McDonald’s and the JD online store. The digital yuan will be piloted during the 2022 Winter Olympics in Beijing.
However, some experts doubt that China’s Napoleonic plans to make the yuan a world currency capable of displacing the dollar will be implemented in the near future. The fact is that Beijing expects to promote the digital yuan to the world based on the Internet, and the Internet is originally an American project, still controlled by leading American IT corporations.
Note that 11 of the 18 global network operators that make up the so-called Tier1 club are in US jurisdiction. Tier1 members are the operators and infrastructure owners of the largest networks that underpin the entire global Internet. A unique feature of the members of the Tier1 club is that with the development of the global network, these companies, becoming the largest operators of network infrastructure, formed direct links with each other based on a cartel-like agreement. For the digital yuan to truly become a global currency, the Internet must also become Chinese. Or by the current Internet there will be a parallel Chinese Internet covering the entire planet. However, the global Internet space is controlled by the US, while Chinese digital competition for Washington is unacceptable both in the field of social networks or digital services (messengers, search engines, video and others) and in the field of international payments.
At the same time, the prospect of the digital yuan becoming a regional or collective currency of a group of countries is quite real. This requires the creation of a regional or collective (within a group of countries, for example, the BRICS group) Internet. China has every opportunity for this, since the sovereign (independent of the world) Internet “Golden Shield” (“Chinese Firewall”) has been operating in the PRC since 2003.
There is no doubt that Beijing will indeed begin full-scale broadcasting of the digital yuan in the next 2-3 years. However, its use is unlikely to go beyond China. The prospects for a noticeable replacement of the US dollar by the digital yuan in the global monetary system in the next decade are unlikely.
Translation: V. Sergeev
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