China’s new digital yuan
Threatens US power
Could it kill the US dollar?
Welcome to China Uncensored. I’m Chris Chappell. China’s new digital currency
is a huge threat to the US.
But first remember to like this episode and subscribe to China Uncensored.
Our episodes also often get demonetized. So if you can,
please support the show on the crowdfunding website Patreon.
And speaking of funding, China has created its own digital currency.
It’s known as the digital yuan, the digital RMB,
or sometimes the e-Chinese yuan, to make it as awkward as possible to talk about.
“China’s version of a digital currency...is expected to give
China’s government vast new tools to monitor both its economy and its people.”
But the digital yuan isn’t just about the Chinese Communist Party’s ability
to control its own economy. It’s also about the Chinese regime’s
increasing global power, and its long-running battle with the US dollar.
For more on that, we go to Shelley Zhang.
Shelley?
Thanks, Chris.
China’s digital yuan is the anti-Bitcoin.
Bitcoin is not controlled by any central authority,
and Bitcoin can offer almost anonymous transactions.
But China’s digital yuan is controlled by the Chinese Communist Party,
and the Party can see everything you’re doing with it.
It’s kind of like Chinese leader Xi Jinping is watching all of your Venmo transactions.
I have no idea what this is Chris, but you spent almost 300 dollars on it,
so it’s probably embarrassing enough for blackmail.
“Hey! How did you get that?”
Moving on.
Of course, China’s central bank claims that it “will limit how
it tracks individuals,” with the digital yuan, through “controllable anonymity.”
And if you believe that, I’ve got an invisible bridge to sell you.
But it’s not enough for the Chinese regime to watch how its citizens use the digital yuan.
They also want to be able to control when they use it.
“Beijing has tested expiration dates to encourage users to spend it quickly,
for times when the economy needs a jump start.”
Forget giving people stimulus checks and hoping they spend it to help the economy,
like the US government does. China can make people spend their own money, or else they take it away.
Of course, there are some caveats. If you’re Uyghur,
then the digital yuan expires twice as fast.
And if you share a Winnie the Pooh meme,
the government just takes all your digital yuan. Forever.
Ok, that’s not true. Yet. But the digital yuan would give the Chinese Communist Party the ability
to do those things. They could use it to monitor, control, and punish dissent more easily than ever.
Chinese people have already been primed to use the digital yuan from years of using mobile payment
apps like WeChat Pay and Alipay. Those apps have turned China into an almost cashless society.
We’ve talked before about how WeChat Pay and Alipay are basically surveillance money.
And how sucking up all of this user data has made the tech companies who own these apps
even more rich and powerful.
But now that the digital yuan is ready,
the Chinese Communist Party is starting to crack down on WeChat Pay and Alipay.
Why go through the hassle of having to get user data from tech companies when the central bank
can just collect it directly with the digital yuan? They’re just cutting out the middleman.
Of course, the central bank also says that the digital yuan will
coexist in harmony with Alipay and WeChat Pay.
But if you believe that’s the long-term plan, I’m telling you,
that invisible bridge has some stunning views. Really worth the money.
But the digital yuan isn’t just about domestic control. It’s also about
international control. I’ll tell you why after the break.
Welcome back.
The Chinese Communist Party hates the fact that China,
like the rest of the world, is dependent on the US dollar as the global reserve currency.
“Nearly 90% of foreign-exchange transactions involve dollars and...more than 60% of all
global central-bank reserves are held in dollar-denominated assets.”
That gives the US a lot of power. For example, the dollar’s dominance is a big
reason why US sanctions on countries like Iran and China actually work.
Just ask Hong Kong Chief Executive Carrie Lam,
who literally has piles of cash at home, and no bank account, due to US sanctions.
For more than a decade, the Chinese Communist Party has tried to internationalize the yuan.
They want to position the yuan as the next global reserve currency, challenging the dollar.
So far, it’s failing.
Here’s why people use the dollar as a global currency: the US is a huge economy that people
do a lot of business with, it’s really easy to use US dollars for trade and investment,
and dollar assets are a safe, stable place to park your money.
China is also a huge economy. But otherwise, the dollar and the yuan are almost exact opposites.
The Chinese Communist Party has strict capital controls on the yuan. That means they strictly
control how much yuan can leave China. Which makes it hard to use the yuan for trade or investment.
And it’s also not a safe place to park your money, because Chinese authorities use the yuan exchange
rate to control China’s domestic economy. That means they will do things like suddenly
devalue the yuan when they need to—like they did in 2015.
So if you owned yuan, it was suddenly worth less. This makes the yuan less stable as a
store of value. But Chinese authorities were more concerned with boosting China’s economy
than that fallout from devaluing the yuan.
So unless the Chinese Communist Party wants to give up this level of control, the yuan is
not going to become a global reserve currency. And they’re not going to give up that control.
But the Chinese Communist Party is still using the digital yuan to target the US dollar.
I’ll tell you how after the break.
Welcome back. So the Chinese Communist Party failed at internationalizing the yuan.
Which is why they’re doing something completely different with the digital yuan.
Instead of using the digital yuan to replace the dollar in the global financial system,
they’re going to use the digital yuan to get around the dollar and the global financial system.
China’s central bank has said that one reason they’re developing the digital yuan is
“to protect [China’s] monetary sovereignty” from Bitcoin and other cryptocurrencies.
But as the Chinese Communist Party has said for years,
China’s monetary sovereignty isn’t just about countering Bitcoin. It’s about countering the US.
Especially US sanctions.
“The chance to weaken the power of American sanctions
is central to Beijing’s marketing of the digital yuan.”
I’m sure Carrie Lam would rather be paid in digital yuan than in piles of cash.
But it’s not just about protecting Chinese officials from US sanctions.
I’ll let Chinese state-run CGTN explain.
“Currently, cross-border RMB settlement is highly dependent on the US SWIFT system,
but these cross-border payment and banking systems have been weaponized by the United States
to impose financial sanctions on multiple parties.
The digital RMB provides an independent alternative for cross-border payments.”
Chinese propaganda is truly an art.
But basically state-run media is spelling it out for us. The digital yuan can help
countries evade US sanctions. Yeah, I can think of a few
countries that might like to evade US sanctions by using the digital yuan.
In fact, two years ago, a wargaming exercise showed how
North Korea could use the digital yuan to neuter US sanctions and buy nuclear weapons.
We’re all going to sleep well tonight.
But of course evading US sanctions is going to take both a digital yuan and an alternative to
the SWIFT cross-border payment system. Which the Chinese regime is already working on.
China’s central bank is separately working on a joint venture with SWIFT,
because they still want the digital yuan to be used by people who aren’t evading US sanctions.
In the end, the yuan might never become the dominant global currency,
because the Chinese Communist Party won’t give up its control.
But the digital yuan can become a parallel global currency,
creating a parallel payments system to the US.
“The expansion of a Chinese digital currency will ultimately
pry open the U.S. grip over global payments, and therefore compromise
U.S. sanctions policy and a significant measure of U.S. power in the world.”
The good news is that China is probably a year, or maybe a few years, away from being able to
use the digital yuan to get around US sanctions. But we should be paying attention to this now.
Chris?
Thanks, Shelley. So I’m curious, how is the US reacting to this?
Well, some experts have called it a national security issue.
Yeah. It is. Good call.
But it’s not totally clear how the Biden administration sees the issue.
According to anonymous officials who talked to Bloomberg,
they’re “stepping up scrutiny” of the digital yuan. Some officials are concerned.
But other officials don’t seem to get it.
Bloomberg says that because China is working with SWIFT, “U.S. officials are reassured
that China’s intentions aren’t to use the digital yuan to evade American sanctions.”
WHAT? Are they even paying attention?
How can they think that China *isn’t* going to evade US sanctions?
I don’t know, Chris. I guess they haven’t watched that Chinese propaganda cartoon
where they specifically talk about using the digital yuan to evade US sanctions.
Thanks Shelley. I’m definitely going to sleep well tonight.
And now it’s time for me to answer a question from a member of the China Uncensored 50 Cent Army,
fans who support the show on Patreon.
Lunar Worx asks, “Hey Chris. Do you think you'd be able to cover the Taiwanese game developers
Red Candle Games? They made video games like Detention and Devotion,
the later of which made them a victim of the CCP's cancel culture.
And could we get someone on the China Uncensored team to do a "Let's Play" of either game?”
You know I remember hearing about those games As you said,
Devotion even got pulled from Steam for hurting the feelings of the Chinese people.
That was a few years ago. But video games are always an issue for the Chinese Communist Party.
Like how Blizzard censored players supporting Hong Kong democracy.
Video games very often seem to become political news.
That’s one reason Matt, Shelley, and I have been thinking of starting a video game channel. Not
only to play these politically sensitive games, but also as a forum for other conversations about
politics. So now I’m going to ask a question. Is that something you would watch? And do you have
any suggestions for what you’d like to see on a show like that. Tell me in the comments below.
As for us playing Devotion, it’s a horror game. Shelley scares easy.
I mean, I would play it, but I wouldn’t want Shelley to feel scared.
Thanks for your question Lunar Worx.
And thank you for watching. Once again I’m Chris Chappell, see you next time.