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Is China’s Digital Yuan the Largest Threat to the U.S.?

Digital Yuan Chip
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EDITOR NOTE: Many of us in the sound money camp see the digital dollar as a necessary evil. Without it, there’s no guarantee that China’s digital yuan won’t eventually unseat the dollar’s hegemony in international trade and reserve. With it, the capacity for the Fed and the government to print and spend dollars, not to mention their capacity to monitor the financial and transactional activities of American citizens, becomes heightened to a degree beyond impunity. China has the advantage. The privacy of its citizens is not a concern. Equitable access seems to be a non-issue. It can impose its own rules of adoption, distribution, and regulation. Hence, China is the largest threat to the U.S. and miles ahead of the rest of the world, having entered a domestic pilot phase while we’re still at the drawing board. As you can see, the digital dollar poses a double risk. And this underscores the value of physical non-CUSIP gold and silver, as both assets are virtually immune to the debasement that the dollar may eventually face in either scenario, whether it digitizes or fails to launch.

China is beating the U.S. when it comes to innovation in online money, posing challenges to the U.S. dollar’s status as the de facto monetary reserve. Nearly 80 countries — including China and the U.S. — are in the process of developing a CBDC, or Central Bank Digital Currency. It’s a form of money that’s regulated but exists entirely online. China has already launched its digital yuan to more than a million Chinese citizens, while the U.S. is still largely focused on research.

The two groups tasked with this research in the U.S., MIT’s Digital Currency Initiative and the Federal Reserve Bank of Boston, are parsing out what a digital currency might look like for Americans. Privacy is a major concern, so researchers and analysts are observing China’s digital yuan rollout.

“I think that if there is a digital dollar, privacy is going to be a very, very important part of that,” said Neha Narula, director of the Digital Currency Initiative at the MIT Media Lab. “The United States is pretty different than China.”

Another concern is access. According to the Pew Research Center, 7% of Americans say they don’t use the internet. For Black Americans, that rises to 9%, and for Americans over the age of 65, that rises to 25%. Americans with a disability are about three times as likely as those without a disability to say they never go online. That is part of what MIT is researching.

“Most of the work that we’re doing assumes that CBDC will coexist with physical cash and that users will still be able to use physical cash if they want to,” Narula said.

The idea of a CBDC in the U.S. is aimed, in part, at making sure the dollar stays the monetary leader in the world economy.

“The United States should not rest on its current leadership in this area. It should push ahead and develop a clear strategy for how to remain very strong and take advantage of the strength of the dollar,” said Darrell Duffie, professor of finance at Stanford University’s Graduate School of Business.

Others see the digital yuan as insidious.

“The digital yuan is the largest threat to the West that we’ve faced in the last 30, 40 years. It allows China to get their claws into everyone in the West and allows them to export their digital authoritarianism,” said Kyle Bass of Hayman Capital Management.

Watch CNBC’s deep dive video into CDBCs to learn more.

Original post from CNBC

All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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