THERE IS NO STAGE BIGGER THAN THE OLYMPICS, for the athletes and the host country. Modern China announced its arrival 13 years ago when 2,008 synchronized drummers wowed the world at the Beijing Summer Olympics opening ceremonies. In February, China is expected to use the Beijing Winter Olympics to unveil a creation of intense international interest: the digital yuan, the first major central bank digital currency, or CBDC.
Consumers are unlikely to notice much difference shopping with e-CNY, as the currency is officially known. It will be worth the same as cash and will activate with a tap, swipe or QR code. But the questions this form of money raises are profound. As governments around the world move to phase out physical cash, what will become of financial privacy? How will state-sponsored digital money affect China’s economy, its trading relationships and—most weighty of all—the future of the global financial system now dominated by the United States and the dollar?
“The question is not whether China’s CBDC will upend the current rules of global trade and commerce,” said Pauline Loong, director of Hong Kong-based research consultancy Asia-Analytica. “The only question is how far-reaching the ramifications will be across issues related to who controls access to capital and its movements.”
But for all of the digital yuan’s consequence, it is a toe peeking out from a giant red curtain. Behind is an ambitious and largely invisible infrastructure program to rewire the country and its economy with a distributed ledger technology known as blockchain. China has moved deliberately to secure first-mover advantage in what it believes is the future of the internet.
If the digital yuan is Beijing’s tender for the digital frontier, its blockchain initiative is its bid to build the railroads.
A New Money
The story of how China came to settle the technological frontier begins with the 2008 financial crisis. Just one month after the Summer Olympics, an under-regulated U.S. financial sector tripped the world into recession. It was a vulnerability that China decided it was no longer willing to accept. As the crisis was unfolding, then-President Hu Jintao called upon like-minded nations at the G20 summit to “steadily promote the diversification of the international monetary system.”
Receiving a muted response, China forged ahead in creating parallel institutions to those dominated by the U.S. In 2010, when Washington’s sanctions effectively locked Iran out of the international financial system, China’s focus on cross-border currency flows intensified.
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