Chinese officials have made no secret that their greatly accelerated efforts at introducing and distributing the digital yuan are an opening move in their long-term strategy to undermine the dollar’s global supremacy and expand their influence.
Despite that, leading U.S. financial officials have rolled their eyes at any suggestion that deeper dangers lurk for the dollar, and thus also for U.S. national security, in the global digital currency race. Even as China marches forward and bitcoin’s value reaches $1 trillion, the Federal Reserve had been in no hurry to be a contestant.
This week marked a public turning point for the most significant U.S. government officials engaged in international finance — Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell. Josh Lipsky, director of the Atlantic Council’s GeoEconomic Center, tweeted that it marked “the firing of a starting gun.”
At a New York Times event on Monday with Secretary Yellen, CNBC’s Andrew Ross Sorkin prompted her most full-throated endorsement yet of a digital dollar, or Central Bank Digital Currency, or CBDC. Though Sorkin called Yellen’s attention to an Atlantic Council survey with Harvard’s Belfer Center, showing that 70 countries now have digital currency projects, Yellen’s focus instead was on the domestic good a digital dollar could do Americans.
“I think it makes sense for central banks to be looking at it,” said Yellen, in a historic snippet on snapchat.
“I gather that people at the Federal Reserve Bank of Boston are working with researchers at MIT to study the properties of it. We do have a problem with financial inclusion. Too many Americans really don’t have access to easy payment systems and bank accounts. This is something that a digital dollar, a central bank digital currency, could help with. I think it could result in faster, safer and cheaper payments.”
In congressional testimony a day later, Fed Chair Powell also broke new ground, calling the digital dollar “a high priority project for us.” He added, “We are committed to solving the technology problems, and consulting very broadly with the public and very transparently with all interested constituencies whether we should do this.”
Yet while the Fed consults, China executes.
Neither Yellen nor Powell mentioned China’s growing lead in digital currency development, yet that was the context. Their call-to-action coincides with China’s announcement earlier this month of a significant partnership with the cross-border payment system SWIFT, removing all doubt that Beijing intends to internationalize the digital yuan.
At the same time, China has concluded a free trade agreement, or FTA, with Mauritius, its first with an African state, in a deal that is designed to create a digital financial testing ground. “As China evolves its digital currency plans, it may ultimately be Mauritius that leads in this area for Africa,” write experts Lauren Johnston and Marc Lanteigne for the World Economic Forum. The FTA agrees to promote “the development of a Renminbi clearing and settlement facility in the territory of Mauritius.”
This all comes as Beijing authorities took advantage of Chinese New Year celebrations on Feb. 12 to deploy three large-scale pilot projects to distribute digital yuan worth roughly $1.5 million in “red packets” of about $30 value each. Then this week, China expanded its testing program of digital currency handouts to the city of Chengdu, the capital of Sichuan province and the fifth most populous city in the country, where it is distributing some $6 million in digital yuan.
A digital Chinese currency red packet is seen on a mobile phone in an arranged photograph as Chengdu city starts to distribute 200,000 E-CNY ‘red packets’ worth 40 million yuan on February 24, 2021 in Yichang, Hubei Province of China.
VCG | Visual China Group | Getty Images
China’s ambition appears being to lay the groundwork now for digital yuan’s coming out party at the end of 2022 at the XXIV Olympic Winter Games in Beijing. The speculation is that Chinese organizers might require that all attendees and athletes download an app that would ensure all their payments at the games for hotels, tickets, food, souvenirs, and more are conducted in its new, digital currency. Even if one does not experience a physical boycott of China’s Olympic games, watch for digital boycotts by the U.S. and other teams.
It is hard not to compare China’s current lead in digital currency development, shrugged…