6 ms·

China’s digital yuan displaces the dollar

31 points by de6u99er 6y ago

Jonnax 6y ago
They don't really explain what the digital yuan is here. If you have "smart contracts" to pay on delivery rather than paying in advance with a bank loan. How does this work? Won't companies still need to generate revenue to pay for the goods? There's mention of 5G but 4G can do contracts? They also say China's goal is not to be a reserve currency but something new, completly different from banking since the 13th century. But I dont think they explained how, unless I missed it
- Arnt 6y ago
  What they're trying to say is threefold: 1. State/progress information provides more trust as more progress information becomes available, and therefore less trust is needed from financial instruments such as escrow. Much of the new information is provided via 5G and the internet. 2. The US has derived enormous benefit from these financial instruments, since they often provided the US with an interest-free loan as a side effect. As these instruments are less needed, less money will be lent to the US on these terms, so the US needs to either borrow less or pay for interest-bearing loans like the rest of us. 3. The US federal government doesn't understand what's coming. (I disagree with one of the points. The above is a summary, not my opinion.)
  - gscott 6y ago
    The solution is to not allow the digital yuan app into the swift system. As soon as people figure out they can't convert their Yuan back into dollars they will use the app less. But if it gets approved for Swift then it would make sense to pay for items from China with the app and that would circumvent having to be converting dollars all of the time. Once people get used to not using Dollars and that will certainly hurt the US monetary system most. Certainly China will also be able hide more money printing behind the app. They can give out Digital Yuan as stimulus unlimited and no one would know any better. https://thesoundingline.com/kyle-bass-china-has-printed-more-money-than-any-country-in-history/ https://thesoundingline.com/kyle-bass-china-has-printed-more... https://thesoundingline.com/chinas-money-supply-has-outgrown-its-economy-over-two-fold-since-2009/ https://thesoundingline.com/chinas-money-supply-has-outgrown...
    - Arnt 6y ago
      That solves the problem in the sense that it replaces the problem with another, functionally identical problem. If the need for escrow diminishes because trust is provided in other ways, then it doesn't really matter to the escrow agency which currency the former customers now use to settle their purchases.
      - libertine 6y ago
        I think the point is about the need to buy money to upfront it, and have to pay to make it secure. Imagine a factory saying: you can pay on delivery if you use this currency, or you have to upfront 50% to the escrow (which you'll have to pay for it's service, and the interest if you used credit). This second scenario you won't have your money stalled for months while paying for it.
    - throwaway4good 6y ago
      Kyle Bass is a cold war warrior that assumes that China is like the US and is caught in terrible one dimensional thinking. What if it is actually true that China doesn't want to be a reserve currency and own seniorage from the rest of the world? (As Chinese leaders repeatably have said.) What if they instead want better credit mechanisms, risk controls and logistics? So credit creation can be backed by future oil produced by Iran, future jet planes produced by Russia, future phones produced by China. And trade can be settled with very little actual central bank currency moving around.
      - T-A 6y ago
        > What if it is actually true that China doesn't want to be a reserve currency and own seniorage from the rest of the world? (As Chinese leaders repeatably have said.) What if it is actually true that China won't militarize reefs in the South China Sea or encroach on Hong Kong's autonomy, as Chinese leaders repeatedly said? Oh, wait...
        throwaway4good 6y ago
        Even if you assume ill intent it would make a lot more sense for China not to try and topple the US dollar dominance head on.
- saint_abroad 6y ago
  > They don't really explain what the digital yuan is here. tldr; > Direct access to central banks will allow tech-enabled non-banks to offer payment services > In the most disruptive case, banks lose deposit base, [and] credit creation [is] funded [directly] by central bank > fintech transformation of the global payments system will bypass the banking system [predominantly in dollars] Digital currencies, as backed by central banks, are just fiat currencies on a digital ledger.
- ikerdanzel 6y ago
  Basically, digital yuan will be USD replacement but article dare not to make that claim, instead keep saying USD will still be reserve currency which directly conflicting what digital yuan will achieve. The entire discussion is just hopeful unrealistic claims similar in line with Bitcoins being the reserve currency because it is "untraceable", "zero transaction cost" and "decentralized". Any major currencies especially serving as reserve currency must have at least these criteria: 1# the backing of world most powerful military. 2# Then the backing of world most powerful financial centres. 3# Then the backing of world trusts. USA has all these 3 far ahead of any other countries. China can't compete in criteria 1# simply because of being a paper tiger. It has internal regionalisation and self-fulfilling expectation of fragmentation which is due now. Its military can't really hold against India or Russia (while USA doable easily though not pretty). China is very authoritarian where digital currency will be closely monitored and control by central entity - CCP. It has also very poor transparency as can be seen by their latest COVID deaths stuck perpectually in their low end thousands since early last year (there are plenty other examples you can ddg). These are not going to give them #3. Currently powering their currency demand mostly from their export. Brazil, Africa and India will be chipping away that in coming years. In fact there are significant resurgent of moving factories to Vietnam and ASEAN within this 2 years (mainly due to Trump factor). Currently only Shanghai and HK has the financial attractions. But HK trajectories are sliding since their unrest since 2 years ago. The discussions totally ignore reaction from EU, Japan and USA (and to some extend Russia). Western banks will be blocked from accessing/control this digital currency. You think the bankers of the old and new world will just sit idle while a string of Sino bankers take their pies? If you believe that, I got some valuable digital bridges to sell to you at a bargain price.
deleted 6y ago
[deleted]
piokoch 6y ago
This game is big, really big. It is all about getting rid of dependency on the SWIFT system backed by US dollars. Iran wants to sell oil to China and buy military equipment from them. Russia wants to sell gas to China. Right now USA can block all of this quite effectively (barter between countries can be used, or gold, which is happening now to some extent, but is very impractical). More. EU wants to trade with Iran as well, the reason for introduction sanctions against Iran after the deal was made and was honored by Iran is hard to understand from the European perspective. But no bank will violate US sanctions and risk to be excluded from SWIFT. Digital Yuan and some other solutions like this (EU is working on a similar solution) might change all of this.
- ur-whale 6y ago
  Don't know if this will be it, but a Boer-war type event is in the very near US future.
  - sprafa 6y ago
    Can you elaborate on what you mean about Boer type war? For someone who’s not familiar with the history.
    - ur-whale 6y ago
      >Can you elaborate The second Boer war[1] is often seen by historians as the one event that precipitated the fall of the British empire [2][3][4] [1]https://en.wikipedia.org/wiki/Second_Boer_War https://en.wikipedia.org/wiki/Second_Boer_War [2]https://sci-hub.se/10.2307/42894929 https://sci-hub.se/10.2307/42894929 [3]http://journals.rudn.ru/world-history/article/view/1145 http://journals.rudn.ru/world-history/article/view/1145 [4]https://www.jstor.org/stable/42894929?seq=1 https://www.jstor.org/stable/42894929?seq=1
      - simonblack 6y ago
        Hmm. I see the actual event that showed the world that Britain's time was up, as the sinking of the Prince of Wales and Repulse warships in December 1941. After that point, the British Empire was dead, but it took another 15 years for it to be self-evident to the British themselves.
throwaway4good 6y ago
Interesting article. One thing is what is happening internally in China's yuan economy. That really doesn't threathen the status of the USD. Another thing is whether better logistics, credit extension backed by assets (such as a partially manufactured product from a factory) would do the demand for holding cash (which would be mostly dollars) in international trade.
jl2718 6y ago
If those offshore dollars come home, or maybe even if new dollars stop leaving, there is nothing that can prevent financial collapse. The government will try absolutely everything to get that money from citizens, and it will only push more money out. The other option is extreme domestic austerity, tax friendliness, and digital modernization. Suppose you were involved in a financial war. Could there have been a better setup for the adversary’s victory than the domestic spending plans of 2020/21? The people who vote for these measures can’t possibly be ignorant of the situation. Regarding financial crime enforcement, I believe that it can be done in a way that strengthens the currency. Generally that means eliminating activity which is net negative for the economy (the other holders of dollar-denominated assets), including the cost of compliance and lost opportunity for commerce. Right now, a common view is that it is overreaching, although this view may be ignorant of all the terrible things it is preventing. Regardless, we are now in competition on this aspect of our monetary system as well.

31 points by de6u99er 6y ago

They don't really explain what the digital yuan is here. If you have "smart contracts" to pay on delivery rather than paying in advance with a bank loan. How does this work? Won't companies still need to generate revenue to pay for the goods? There's mention of 5G but 4G can do contracts? They also say China's goal is not to be a reserve currency but something new, completly different from banking since the 13th century. But I dont think they explained how, unless I missed it

Arnt 6y ago
What they're trying to say is threefold: 1. State/progress information provides more trust as more progress information becomes available, and therefore less trust is needed from financial instruments such as escrow. Much of the new information is provided via 5G and the internet. 2. The US has derived enormous benefit from these financial instruments, since they often provided the US with an interest-free loan as a side effect. As these instruments are less needed, less money will be lent to the US on these terms, so the US needs to either borrow less or pay for interest-bearing loans like the rest of us. 3. The US federal government doesn't understand what's coming. (I disagree with one of the points. The above is a summary, not my opinion.)
- gscott 6y ago
  The solution is to not allow the digital yuan app into the swift system. As soon as people figure out they can't convert their Yuan back into dollars they will use the app less. But if it gets approved for Swift then it would make sense to pay for items from China with the app and that would circumvent having to be converting dollars all of the time. Once people get used to not using Dollars and that will certainly hurt the US monetary system most. Certainly China will also be able hide more money printing behind the app. They can give out Digital Yuan as stimulus unlimited and no one would know any better. https://thesoundingline.com/kyle-bass-china-has-printed-more-money-than-any-country-in-history/ https://thesoundingline.com/kyle-bass-china-has-printed-more... https://thesoundingline.com/chinas-money-supply-has-outgrown-its-economy-over-two-fold-since-2009/ https://thesoundingline.com/chinas-money-supply-has-outgrown...
  - Arnt 6y ago
    That solves the problem in the sense that it replaces the problem with another, functionally identical problem. If the need for escrow diminishes because trust is provided in other ways, then it doesn't really matter to the escrow agency which currency the former customers now use to settle their purchases.
    - libertine 6y ago
      I think the point is about the need to buy money to upfront it, and have to pay to make it secure. Imagine a factory saying: you can pay on delivery if you use this currency, or you have to upfront 50% to the escrow (which you'll have to pay for it's service, and the interest if you used credit). This second scenario you won't have your money stalled for months while paying for it.
  - throwaway4good 6y ago
    Kyle Bass is a cold war warrior that assumes that China is like the US and is caught in terrible one dimensional thinking. What if it is actually true that China doesn't want to be a reserve currency and own seniorage from the rest of the world? (As Chinese leaders repeatably have said.) What if they instead want better credit mechanisms, risk controls and logistics? So credit creation can be backed by future oil produced by Iran, future jet planes produced by Russia, future phones produced by China. And trade can be settled with very little actual central bank currency moving around.
    - T-A 6y ago
      > What if it is actually true that China doesn't want to be a reserve currency and own seniorage from the rest of the world? (As Chinese leaders repeatably have said.) What if it is actually true that China won't militarize reefs in the South China Sea or encroach on Hong Kong's autonomy, as Chinese leaders repeatedly said? Oh, wait...
      - throwaway4good 6y ago
        Even if you assume ill intent it would make a lot more sense for China not to try and topple the US dollar dominance head on.
saint_abroad 6y ago
> They don't really explain what the digital yuan is here. tldr; > Direct access to central banks will allow tech-enabled non-banks to offer payment services > In the most disruptive case, banks lose deposit base, [and] credit creation [is] funded [directly] by central bank > fintech transformation of the global payments system will bypass the banking system [predominantly in dollars] Digital currencies, as backed by central banks, are just fiat currencies on a digital ledger.
ikerdanzel 6y ago
Basically, digital yuan will be USD replacement but article dare not to make that claim, instead keep saying USD will still be reserve currency which directly conflicting what digital yuan will achieve. The entire discussion is just hopeful unrealistic claims similar in line with Bitcoins being the reserve currency because it is "untraceable", "zero transaction cost" and "decentralized". Any major currencies especially serving as reserve currency must have at least these criteria: 1# the backing of world most powerful military. 2# Then the backing of world most powerful financial centres. 3# Then the backing of world trusts. USA has all these 3 far ahead of any other countries. China can't compete in criteria 1# simply because of being a paper tiger. It has internal regionalisation and self-fulfilling expectation of fragmentation which is due now. Its military can't really hold against India or Russia (while USA doable easily though not pretty). China is very authoritarian where digital currency will be closely monitored and control by central entity - CCP. It has also very poor transparency as can be seen by their latest COVID deaths stuck perpectually in their low end thousands since early last year (there are plenty other examples you can ddg). These are not going to give them #3. Currently powering their currency demand mostly from their export. Brazil, Africa and India will be chipping away that in coming years. In fact there are significant resurgent of moving factories to Vietnam and ASEAN within this 2 years (mainly due to Trump factor). Currently only Shanghai and HK has the financial attractions. But HK trajectories are sliding since their unrest since 2 years ago. The discussions totally ignore reaction from EU, Japan and USA (and to some extend Russia). Western banks will be blocked from accessing/control this digital currency. You think the bankers of the old and new world will just sit idle while a string of Sino bankers take their pies? If you believe that, I got some valuable digital bridges to sell to you at a bargain price.

deleted 6y ago

[deleted]

piokoch 6y ago

This game is big, really big. It is all about getting rid of dependency on the SWIFT system backed by US dollars. Iran wants to sell oil to China and buy military equipment from them. Russia wants to sell gas to China. Right now USA can block all of this quite effectively (barter between countries can be used, or gold, which is happening now to some extent, but is very impractical). More. EU wants to trade with Iran as well, the reason for introduction sanctions against Iran after the deal was made and was honored by Iran is hard to understand from the European perspective. But no bank will violate US sanctions and risk to be excluded from SWIFT. Digital Yuan and some other solutions like this (EU is working on a similar solution) might change all of this.

ur-whale 6y ago
Don't know if this will be it, but a Boer-war type event is in the very near US future.
- sprafa 6y ago
  Can you elaborate on what you mean about Boer type war? For someone who’s not familiar with the history.
  - ur-whale 6y ago
    >Can you elaborate The second Boer war[1] is often seen by historians as the one event that precipitated the fall of the British empire [2][3][4] [1]https://en.wikipedia.org/wiki/Second_Boer_War https://en.wikipedia.org/wiki/Second_Boer_War [2]https://sci-hub.se/10.2307/42894929 https://sci-hub.se/10.2307/42894929 [3]http://journals.rudn.ru/world-history/article/view/1145 http://journals.rudn.ru/world-history/article/view/1145 [4]https://www.jstor.org/stable/42894929?seq=1 https://www.jstor.org/stable/42894929?seq=1
    - simonblack 6y ago
      Hmm. I see the actual event that showed the world that Britain's time was up, as the sinking of the Prince of Wales and Repulse warships in December 1941. After that point, the British Empire was dead, but it took another 15 years for it to be self-evident to the British themselves.

throwaway4good 6y ago

Interesting article. One thing is what is happening internally in China's yuan economy. That really doesn't threathen the status of the USD. Another thing is whether better logistics, credit extension backed by assets (such as a partially manufactured product from a factory) would do the demand for holding cash (which would be mostly dollars) in international trade.

jl2718 6y ago

If those offshore dollars come home, or maybe even if new dollars stop leaving, there is nothing that can prevent financial collapse. The government will try absolutely everything to get that money from citizens, and it will only push more money out. The other option is extreme domestic austerity, tax friendliness, and digital modernization. Suppose you were involved in a financial war. Could there have been a better setup for the adversary’s victory than the domestic spending plans of 2020/21? The people who vote for these measures can’t possibly be ignorant of the situation. Regarding financial crime enforcement, I believe that it can be done in a way that strengthens the currency. Generally that means eliminating activity which is net negative for the economy (the other holders of dollar-denominated assets), including the cost of compliance and lost opportunity for commerce. Right now, a common view is that it is overreaching, although this view may be ignorant of all the terrible things it is preventing. Regardless, we are now in competition on this aspect of our monetary system as well.