While the US tries to adapt digital currency to its welfare state and otherwise avoid it in the global markets, China spent the last five years working on the digital yuan.
I am for doing good to the poor, but I differ in opinion about the means. I think the best way of doing good to the poor is not making them easy in poverty, but leading or driving them out of it.
Over the past century, the US has done the exact opposite of Franklin’s wisdom. It’s hidden the breadline in an EBT card, for example. According to a study done by JustFacts, the poorest 20% of Americans are richer on average than most European nations.
Still, there are less efforts to truly help the poor as in help them out of poverty, than there are efforts to manage poverty itself.
Talks of a US digital dollar are cropping up in the halls of congress, but it seems more to make poverty comfortable than it is to help any Americans.
Discussions of a digital US dollar came up in the House of Representatives in the context of administering a second round of “stimulus”:
Congresswomen Rashida Tlaib (D-Mich.) and Pramila Jayapal (D-Wash.) introduced a new stimulus proposal of $2,000 per month to residents through the Automatic BOOST to Communities Act (ABC Act). Under the ABC Act, Congress would authorize the Federal Reserve to create “FedAccounts,” or “Digital Dollar Account Wallets,” which would allow U.S. residents and business to access financial services through an app on their phone.
In the wake of those talks, the Senate Banking Committee discussed the matter of a digital US dollar as well. This from Arkansas Republican Senator Tom Cotton:
“The U.S. needs a digital dollar…The U.S. dollar has to keep earning that place in the global payments system. It has to be better than bitcoin … it has to be better than a digital yuan.”
I appreciate his hat tip to free market competition when he insists the US digital dollar needs to be “better than bitcoin”, but I don’t think he quite understands how currencies work. The digital US dollar will not do any better than the regular US dollar because they are the same debased currency, manufactured by the Federal Reserve, backed by the same debt.
In any case, digital currencies are being discussed as a form of modernization. Modernization of what though? Already there’s Paypal, Zelle, Venmo, and CashApp that allow people to pay one another seamlessly.
A new currency to compete with the likes of Bitcoin, entails a brand-new set up and an entirely different source of backing. If the US digital dollar is backed by the same debt as the regular US dollar, then it amounts to little more than a Venmo account.
I’ve cautioned about the cashless agenda for a while now. Not having a hard asset and moving toward an almost exclusively digital form of currency opens the door to endless “printing” of money, and next level surveillance.
Digital currency makes everyone traceable. This can very easily roll out and bring contact and virus tracing along with it.
Having the option isn’t the same as moving toward exclusively digital transactions.
This vision of “modernization” certainly is not the way in which to compete with Bitcoin, but sounds more like a streamline way for the Fed to print money or a mechanism for further hiding the breadline.
A more interesting point that Senator Cotton brings up, however, is the digital yuan. Five years in the making, China is now rolling out pilots of their digital currency and expects to have it in full effect in the next couple years.
The pandemic has certainly scared enough people into avoiding cash, but people were also thwarted into paying for nearly everything by card online. The other side to that is that the US Mint has slowed production because fewer people have been working there due to social distancing restrictions.
The shortage isn’t due to the corona virus. It’s due to the policies made and imposed around the corona virus. This is important because the policies that got people to this place primed them for policies that further the cashless agenda.
Viruses don’t stop mint production. Viruses don’t make people stop shopping. Hyperbolic news and overactive governments do that.
My generation’s parents were romping around in the field at Woodstock during a major flu pandemic; but life certainly went on. Blaming the virus is just a big fat red herring. This isn’t a hoax plug. It’s a responsibility plug. And I don’t like how that was quickly ceded to some virus.
The reason this is important is because this is what China is doing. With the hysteria behind COVID-19, and the existing gravitation toward phone paying apps among younger people in China, they have their sights on reaching the unbanked population:
The promise, and threat, of a digital yuan is that it can fuel and extend China’s online technology to create a global common market. Vast populations do not have access to banking. Indonesia, for example, has one of the world’s largest populations and more cellphones than people. But more than 60% don’t own a bank account.
They’re not alone. According to the World Bank, 1.7 billion adults globally use cash because they don’t have transaction accounts. However, about two-thirds of these people (1.1 billion) have a mobile phone, which can be used to make and receive payments. In emerging markets and developing economies, mobile phones are poised to become banks.
Between all the regulations and fees, banks are less appealing than a free digital account on your phone, right? China is happy to do away with the contemporary banking institution if it means surpassing the US dollar globally. And that’s exactly what it means to do.
China based Alibaba is leagues ahead of US based Amazon in sheer volume of transactions and is helping to move the digital yuan forward. The US still sees “security risks” to entertaining any iteration of Facebook’s Libra Coin.
It went from a social media based cryptocurrency to a much broader and stablecoin:
The Libra’s value is tied to a basket of bank deposits and short-term government securities for a slew of historically stable international currencies, including the dollar, pound, euro, Swiss franc and yen. The Libra Association maintains this basket of assets and can change the balance of its composition if necessary to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent.
The bigger concern here is that if China beats all other would-be players to the field, they pose a very large risk in providing a work around sanctions. Harvard University professor and economist Kenneth Rogoff cuts to the crux of the risks the US should be worried about:
“A US-regulated digital currency could in principle be required to be traceable by U.S. authorities, so that if North Korea were to use it to hire Russian nuclear scientists, or Iran were to use it to finance terrorist activity, they would run a high risk of being caught, and potentially even blocked.
“If, however, the digital currency were run out of China, the U.S. would have far fewer levers to pull. Western regulators could ultimately ban the use of China’s digital currency, but that wouldn’t stop it from being used in large parts of Africa, Latin America, and Asia, which in turn could engender some underground demand even in the U.S. and Europe.”
I was listening to some Thomas Sowell clips, and he made an excellent observation about so-called “intellectuals”. It’s not that they aren’t smart. But they need to stick to their fields of expertise. He used Noam Chompsky as an example. He is a linguist and an expert in that field, but he has no business opining in politics.
This is what the US congress is up against: a bunch of people who are probably smart in some field, but economics and cryptocurrency are not among them.
The US will not show up in time to meet the Chinese challenge in crypto. All the world can do is wait and see how it unfolds.
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