China recently took a decisive step that undermined the global dominance of the dollar by introducing its digital sovereign currency.
Coronavirus catalyst
In April 2020, the People’s Bank of China (PBoC) stepped up the development of an electronic yuan, slated to become one of the first digital currencies created and managed by the government rather than a private corporation.
China has been working on its own crypto currency since 2014, but has decided to introduce it now, at a time when the world economy is threatened by a major crisis and the hegemonic power of the modern world system – the United States – is in a difficult economic and political situation. The Coronavirus has intensified domestic political problems within the US and demonstrated the ineffectiveness of the US political, economic and social system.
At the same time, the Americans and their allies, believing that China is actively gunning to become the global leader against this background, are increasing pressure against Beijing in any way they can. This is being done by military methods and through information attacks such as accusations the government is responsible for the coronavirus and spreading disinformation around the world.
An important instrument of pressure on China are the calls coming from a significant number of authoritative American politicians to refuse to pay off their debt obligations to China.
The prospect of sanctions and even disconnection from the SWIFT system is looming on the horizon. Economic instruments of pressure are the most effective. China has turned into the main “world factory”, but it works in the financial system, fully tied to the US and the American dollar.
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Means of defence and offense
China has chosen the proper time to start the rapid decoupling from the dollar. China’s Sovereign Digital Currency can act as an alternative to the dollar, hedging the consequences of any sanctions or threats, both at the national level and for individual companies.
From a geopolitical point of view, the Cyber Yuan can be considered not only as a means of protection against US attacks in the international finance field, but also as a means of offense. Since China will be the sole holder and issuer of the new currency, the countries participating in the “Belt and Road” initiative will be tied to the Cyber-Yuan by participating in the settlement of transactions or they will not be able to not participate in the BRI – in the predicted downturn in the world economy against the backdrop of coronavirus, all major contracts will be particularly dear. China could also supply the use of the digital yuan to foreign companies that want to continue working in China.
China’s central bank has started testing its e-currency in several cities, including Shenzhen, Suzhou, Chengdu, as well as in a new special area south of Beijing – Xunan. It is indicative that electronic payment systems in China are highly developed and all are national. China has not actively introduced foreign electronic payment systems such as ApplePay or Samsung pay, but has developed its own – Alipay digital payment systems, which are supported by Ant Financial, owned by Alibaba, and WeChat Pay, which is owned by Tencent. Thus, China as a whole is characterized by a trend toward autonomous and independent electronic money settlement systems.
The national versus the globalist e-currency
In 2019, Facebook announced its intention to launch its own cyber currency the Libra. Thus, the acceleration of the transition to its own digital currency can also be considered an attempt by China to create a national alternative in the world of crypto-currencies. Instead of giving up this promising area to transnational corporations, China has decided to lead the process.
The vast majority of cyber-currencies involve the anonymity of their holders and are used for illegal transactions. However, Chinese cyber-currency will render transactions transparent to the national payment system.
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China’s announcement coincides with Facebook’s problems. In April, the American tech-giant, following attempts by parliamentarians around the world to limit its activities in the field of crypto-currencies, said that “Libra Association has consulted and engaged with numerous global stakeholders” and that the design of its financial system would include “the ability of the Libra payment system to offer single-currency stablecoins in addition to the multi-currency Libra coin. Thus, Libra will be pegged to already existing world currencies – the euro and the dollar, and thus will be controlled by the owners of the current global financial system.
As China introduces a new e-currency, confrontation with the US will increase. It can easily be predicted that if China’s success in the crypto leads to a significant ousting of the dollar and the euro, the Americans will have nothing left to do but launch a full-scale proxy war with China, after which their arsenal will have only one means left – to launch a direct and open war with China, potentially including the use of weapons of mass destruction.
However, this catastrophic scenario can still be avoided if other countries also consider introducing their electronic currencies as an instrument of maintaining sovereignty and agree with China on rules for the settlement of national electronic currencies.
In this regard, a window of opportunity is open for Turkey. At the end of last year, President Recep Tayyip Erdogan ordered that by the end of 2020 the central bank digital currency (CBDC) will be tested in Turkey. Thus, Turkey may become the first country in the Middle East and West Asia to impose its own e-currency – the digital lira.