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The narrative on HN seems to be about how this is not good/useful for digital currency users in the US. This is straight up a competitor for the digital yuan (

by csa 5y ago

The narrative on HN seems to be about how this is not good/useful for digital currency users in the US. This is straight up a competitor for the digital yuan (Chinese RMB), and the most valuable use cases from a US federal perspective are international uses (mostly developing countries). Some ideas: - The USD is used as a default currency in many places for many transactions, but there is friction in the system, especially for small payments, and especially with hostile regimes. - The USD as a default currency gives many benefits to the US (e.g., essentially free money). - China and the US are and will be battling for the market of the default currency of non-domestic microtransactions with digital currency. This is just a part of that battle. - There may be some benefits (or not) for domestic users of the eUSD, but that is not the main purpose of this currency. If the eUSD doesn’t resonate for you, then consider that you may not be the target market. - Note that this currency will most likely be presented/marketed in a very different way than I am suggesting above, and this will be more for political reasons than anything else. Edit1: Note that when taken in this light, certain aspects of the eUSD like non-distributed ledger, centralized control, etc. should make more sense. Edit2: Here is a link with more info: https://www.mauldineconomics.com/frontlinethoughts/a-giant-consumptive-force https://www.mauldineconomics.com/frontlinethoughts/a-giant-c...

seanmcdirmid 5y ago
If China wanted more people around the world to use its currency, freely floating its exchange rate on the market is a must. That the RMB is not freely convertible like the dollar is is a huge hurdle to its international adoption. American cash usage is already way way down and has been falling for the last 3 decades. That this is often because of expensive banking and credit card interchange networks has to be of some concern to the US government, those fees add up to extra friction in the economy, and a digital currency looks really appealing even for domestic use (see what happened with using WeChat for payments in China).
- csa 5y ago
  > If China wanted more people around the world to use its currency, freely floating its exchange rate on the market is a must. That the RMB is not freely convertible like the dollar is is a huge hurdle to its international adoption. In some circles, especially for very large cross-border transactions, this is definitely true. That said, for microtransactions in developing countries, this is less of an issue. China will go out of its way to make this a stable and easily convertible currency for folks in these markets.
  - seanmcdirmid 5y ago
    Maybe they could supplant the dollar in adjacent southeast Asian countries first? It’s pretty surprising how far the dollar goes in Laos or Cambodia, for example. The RMB not being convertible or freely traded is a real PITA (when I was being paid in it), why would they let their digital currency float if they aren’t ready to float the yuan? If the digital currency has full convertibility with the R!B, that’s a huge whole for their currency controls.
    - csa 5y ago
      Imho, it does not need to float to get the outcome that China wants. There is a summary of the ideas here: https://www.mauldineconomics.com/frontlinethoughts/a-giant-consumptive-force https://www.mauldineconomics.com/frontlinethoughts/a-giant-c... More can be found on Google/YT.
      - seanmcdirmid 5y ago
        The article doesn’t say how the currency will be valued, which makes its use outside of China problematic. The PBOC will have to set a price that has to mean something, and will mean less if exchange is restricted like the RMB. That Laos bar will have to know how much to charge for a beer in Kip, USD, bhat, and this new digital yuan…an exchange value has to be set.
        bobthepanda 5y ago
        I agree with what you're saying but I don't think float is the right word here. You can, with great difficulty, maintain a peg to something; the US was pegged for decades, the Euro was preceded by a fairly broad system of pegs, etc. Though most currency crises start by trying to defend an indefensible peg. Really the issue is restrictions on capital inflows and outflows. That bartender can say whatever things are worth in digital CNY at any given time but if they become unredeemable at any time they become totally useless. Any bank that starts restricting withdrawals is at risk of a bank run, and digital CNY would be no different. PBOC has a history of tightening the screws on capital flows, there's not really a reason to start trusting it with digital CNY.
ur-whale 5y ago
> then consider that you may not be the target market. You're assuming you will be given a choice.
mercy_dude 5y ago
> The USD as a default currency gives many benefits to the US (e.g., essentially free money). This is not true. USD as a default reserve currency is bad for US since US is no longer a net producer economy. What happens is other countries like China which are net producer economies take our paper dollars and invest it in our hard assets - such as stocks and real estates essentially inflating their prices and pricing out many US citizens. If you look at the foreign ownership trend of these assets over recent years, this is quite clear.
- bigcat123 5y ago
- echelon 5y ago
  The USD as a default reserve currency gives US citizens outsized PPP. If the USD was no longer the reserve currency, there would be pricing shocks throughout the economy. Reserve currency status allows the US to advantageously print away its debt and more easily navigate global recessions. It's essentially a superpower, and the US won't give it up easily. While it's true that the US is not a net producer, it has a best in class service economy. Software, entertainment, financials. Soon China won't be able to cheaply afford to run its factories and it too will be looking to outsource to developing countries. This is why it's morphing into a service economy as well. Manufacturing hopping from country to country is a great tool for bringing entire nations out of poverty. The lack of low hanging fruit for developed economies makes it harder for the middle class than in earlier generations (midpoint in the S-curve), but bringing manufacturing back won't work without tariffs and a shut off of cheap imports. While the US could do well to onshore production of critical components (semiconductors, pharmaceuticals, chemicals, steel, etc.), or to place them in more friendly international jurisdictions (bonus if they're not concentrated to one country/region), the long-term future for production is automation.
  - mercy_dude 5y ago
    This is a classic neo-con argument, maintain the status quo at the expense of your middle and working class people being priced out in their own country that them and their ancestors built. Why build anything when the largest monetary reward in society goes to some idiot in Goldman Sachs tweaking numbers in balance sheet or some tool in HR department. Enough said about the service sector. > While the US could do well to onshore production of critical components And how exactly is the US going to do that? The prices of raw material/oil is decade high and supply chain is completely broken. These things are going to cost even more money and going to need more money printing. It took China to build these things 30yrs even doing so at the record pace. Reality is the largest buyer of US debt is now the Fed. Any attempt to control the inflation at the backdrop of 33 trillion debt with higher rates is going to seriously raise the possibility of sovereign default. So hyperinflation and devaluations is the only way out. And the resulting political and social unrest follows.

by csa 5y ago

seanmcdirmid 5y ago

If China wanted more people around the world to use its currency, freely floating its exchange rate on the market is a must. That the RMB is not freely convertible like the dollar is is a huge hurdle to its international adoption. American cash usage is already way way down and has been falling for the last 3 decades. That this is often because of expensive banking and credit card interchange networks has to be of some concern to the US government, those fees add up to extra friction in the economy, and a digital currency looks really appealing even for domestic use (see what happened with using WeChat for payments in China).

csa 5y ago
> If China wanted more people around the world to use its currency, freely floating its exchange rate on the market is a must. That the RMB is not freely convertible like the dollar is is a huge hurdle to its international adoption. In some circles, especially for very large cross-border transactions, this is definitely true. That said, for microtransactions in developing countries, this is less of an issue. China will go out of its way to make this a stable and easily convertible currency for folks in these markets.
- seanmcdirmid 5y ago
  Maybe they could supplant the dollar in adjacent southeast Asian countries first? It’s pretty surprising how far the dollar goes in Laos or Cambodia, for example. The RMB not being convertible or freely traded is a real PITA (when I was being paid in it), why would they let their digital currency float if they aren’t ready to float the yuan? If the digital currency has full convertibility with the R!B, that’s a huge whole for their currency controls.
  - csa 5y ago
    Imho, it does not need to float to get the outcome that China wants. There is a summary of the ideas here: https://www.mauldineconomics.com/frontlinethoughts/a-giant-consumptive-force https://www.mauldineconomics.com/frontlinethoughts/a-giant-c... More can be found on Google/YT.
    - seanmcdirmid 5y ago
      The article doesn’t say how the currency will be valued, which makes its use outside of China problematic. The PBOC will have to set a price that has to mean something, and will mean less if exchange is restricted like the RMB. That Laos bar will have to know how much to charge for a beer in Kip, USD, bhat, and this new digital yuan…an exchange value has to be set.
      - bobthepanda 5y ago
        I agree with what you're saying but I don't think float is the right word here. You can, with great difficulty, maintain a peg to something; the US was pegged for decades, the Euro was preceded by a fairly broad system of pegs, etc. Though most currency crises start by trying to defend an indefensible peg. Really the issue is restrictions on capital inflows and outflows. That bartender can say whatever things are worth in digital CNY at any given time but if they become unredeemable at any time they become totally useless. Any bank that starts restricting withdrawals is at risk of a bank run, and digital CNY would be no different. PBOC has a history of tightening the screws on capital flows, there's not really a reason to start trusting it with digital CNY.

ur-whale 5y ago

> then consider that you may not be the target market. You're assuming you will be given a choice.

mercy_dude 5y ago

> The USD as a default currency gives many benefits to the US (e.g., essentially free money). This is not true. USD as a default reserve currency is bad for US since US is no longer a net producer economy. What happens is other countries like China which are net producer economies take our paper dollars and invest it in our hard assets - such as stocks and real estates essentially inflating their prices and pricing out many US citizens. If you look at the foreign ownership trend of these assets over recent years, this is quite clear.

bigcat123 5y ago
echelon 5y ago
The USD as a default reserve currency gives US citizens outsized PPP. If the USD was no longer the reserve currency, there would be pricing shocks throughout the economy. Reserve currency status allows the US to advantageously print away its debt and more easily navigate global recessions. It's essentially a superpower, and the US won't give it up easily. While it's true that the US is not a net producer, it has a best in class service economy. Software, entertainment, financials. Soon China won't be able to cheaply afford to run its factories and it too will be looking to outsource to developing countries. This is why it's morphing into a service economy as well. Manufacturing hopping from country to country is a great tool for bringing entire nations out of poverty. The lack of low hanging fruit for developed economies makes it harder for the middle class than in earlier generations (midpoint in the S-curve), but bringing manufacturing back won't work without tariffs and a shut off of cheap imports. While the US could do well to onshore production of critical components (semiconductors, pharmaceuticals, chemicals, steel, etc.), or to place them in more friendly international jurisdictions (bonus if they're not concentrated to one country/region), the long-term future for production is automation.
- mercy_dude 5y ago
  This is a classic neo-con argument, maintain the status quo at the expense of your middle and working class people being priced out in their own country that them and their ancestors built. Why build anything when the largest monetary reward in society goes to some idiot in Goldman Sachs tweaking numbers in balance sheet or some tool in HR department. Enough said about the service sector. > While the US could do well to onshore production of critical components And how exactly is the US going to do that? The prices of raw material/oil is decade high and supply chain is completely broken. These things are going to cost even more money and going to need more money printing. It took China to build these things 30yrs even doing so at the record pace. Reality is the largest buyer of US debt is now the Fed. Any attempt to control the inflation at the backdrop of 33 trillion debt with higher rates is going to seriously raise the possibility of sovereign default. So hyperinflation and devaluations is the only way out. And the resulting political and social unrest follows.