Why China's Digital Currency Doesn't Matter

This is upper Albert Road in central Hong Kong stand here at just the right time each month and you'd witness a strange sighta car delivering 433 000 Hong Kong dollars or 55 000 u's in cash to a nearby home inside the house, you'd find what could only be the sure sign of a criminal stacks and stacks of cash about 670 000us dollars accumulating each year no bank no matter how big or small local or international is brave enough to do business with this highly suspiciouscharacterthis place is known as government house and this person is none other than the chief executive of the Hong Kong special administrative region to be clear this is the highest authority in the territory it's local equivalent to president or primeministerand yet she's completely unable to Opena bank account in her own territory even by her own banks because no company whether American European or Chinese will touch her money Carrie lam receives her salary hand-delivered in cash with no credit card to make purchases she has no way of paying for Netflix or doing some online shopping financially she's been exiled to the1800s and all while living in one of the world's best places to shop the reason for all this is simple a person in a country 8 000 miles away signed a piece of paper the president of the United States and the Hong Kong autonomy act such is the unparalleled power of the American government and prominence of the u's dollars long as the world continues transacting in its currency the world will have no choice but to play by itsrulesalthough it will surely never happen the u's treasury could in theory make the state-run bank of China close the Chinese bank account of general secretary xi Jinping but this exorbitant privilege wielded byte u's need not last forever if the collective world chose the renin binstead, China would have this power Anda growing number of experts are concerned exactly that may happen likely within the next six months to a year China will become the first major country to launch a digital currency the progress of which is years at least ahead of the us could this be the beginning of the end for the us dollar and with it its ability to financially exile anyone it wishes the us dollar has seen its fair share of rivals most recently the euro but even at its most tenuous moments has still had plenty of room to fall today in 2021 it comprises about 60 of global currency reserves a figure made only more impressive when compared toits closest competitors the next most popular currency is the euro at only 20 percent where is China's renminbi way down hereat about two percent if you can even seeitthat's despite the fact that its economy makes up about 1 6th of the world's GDP zoom out however and things get a bit more complicated some interpret this graph as proving the dollar is here to stay it is in fact more widely held now than 40 years ago others see a market ripe for disruption its trend however slow is clearly downward they would argue and besides currency reserves are very much winner take all two percent may not sound likea lot but actually places the renminbi in fifth place thanks to network effects if the world were to change its mind on the dollar the shift may happen fast with the new winner taking a dominant position like the dollar today which brings us to the digital yuen while it's still being tested the exact details are uncertain but it's expected to launch as early as next February's winter Olympics officially called the digital currency electronic payment system the idea is to make a one-to-one digital version of cash with many of the same properties like cash for example you may not need a bank account and it will have the same legal status you'd be able to deposit money from your bank or an atm and send money to others directly likely without a fee if this sounds revolutionary you've surely never stepped foot in China while a few of these features might be novel in most countries' China is lightyears ahead when it comes to mobilepaymentspaying for everything with your phone is massively more convenient than cash or credit card unfortunately, China uses neither at least 85 percent of Chinese adults with access to the internet use mobile payments for everything from groceries and gas to paying parking tickets you won't go 10 steps without seeing one of these signs neither does the digital un solve a problem of fragmentation94 percent use WeChat or Alipay in fact all it does is introduce one morestandardnow you might assume digital means cryptocurrency but central bank digital currencies are not in any way cryptocurrencies neither are theyblockchainsneither are they decentralized orpermissionlessin other words, virtually every limitation of regular cash applies to digital cash as well the digital un is the very antithesis of cryptocurrency the latter promises a future free from government interventiona world where no one can be blocked from the financial system one that is totallyanonymouswhether you see those things as features or bugs China's invention is the exact opposite the central bank controls who can participate the printing of money and everything in between some claim it would allow money to move faster than bank transfers but most mobile wallets are already instant some claim it would allow for new and interesting monetary policies like making unused stimulus checks expire after a crisis is over but experts have rightly pointed out that this is already possible so, what exactly is special or unique about it there is one party for whom this will truly be revolutionary the government while it can and does already request data from banks and payment platforms this information is necessarily delayed and cash goes undetected when payments are made directly to and from the central bank authorities will have a real-time window into every transaction in the country nothing will slide under the radar including money laundering gambling and any other form of illegal activity if and when physical cash disappears there will be nowhere for corrupt politicians or tax evaders to hide finally, power will shift from private companies like ant and Tencent over to the state companies may design the apps and interfaces that citizens interact with but the actual levers of policy will be firmly in the hands of the government rather than one degree removed this is not unique every government wants tighter control over its economy but for China, the issue takes on a particular urgency it cannot afford tobe late if doing so means seeding control to a private company or worse a foreign private company for users though it will appear as though China invented PayPal or applepayjust one more app to use with no realadvantagethe problem won't be adoption if necessary the government will simply force it upon the public the real challenge is international adoption replacing the yuan with the digital Un is relatively easy but notrevolutionaryreplacing the dollar with the un would-be revolutionary but is far from easy the reason countries choose the dollar is not because of its technical superiority after all most financial transactions are already digital just ones and zeros moving from one account to another no, the world chooses the dollar because of its stability liquidity and transparency three things which a digital currency does absolutely nothing to address you'll know China is serious about internationalizing the renminbi when it makes the costly trade-off of removing capital controls and letting its exchange rate float freely until then sources proclaiming the end of the us dollar and threat of the digital Un are at best motivational tools and at worst deceptive fear-mongering.