Within the past few months, a centralized digital dollar has been brought up by major nations such as China, the United States and Europe. When Facebook introduced their Libra coin, it caused fear in many governing bodies that their powers could be taken away from them, because of the reach and efficiency of digital currencies.
Even before Libra, countries have been thinking of ways to dethrone the U.S. dollar. So, Why is everyone suddenly so inspired to compete? and how could a digital dollar be considered a threat to national security?
Europe on competing with Visa and creating a digital currency
“A central bank digital currency could ensure that citizens remain able to use central bank money even if cash is eventually no longer used”. - Benoît Cœuré
The most recent conversation about a central bank backed digital currency was had in Europe at the Joint Conference of the ECB and the National Bank of Belgium. Cœuré, Executive at the ECB, named many reasons for this consideration. Untested stablecoins like Libra as a threat, foreign run cards dominate European transactions, and like everyone else, they’d like to take some power away from the USD.
Another recent European announcement, the Pan European Payment System Initiative, (codename, Pepsi) intends to compete with Mastercard and Visa by allowing faster transactions. The project is backed by 20 major European banks including BNP Paribas and Deutsche Bank, and would allow transactions to settle instantly in the Euro area. Cœuré mentioned that the EBC would assist in making that technology a possibility.
China’s loves being cashless, and might be the first with a digital dollar
China has had plans for a digital currency for several years, under the acronym DCEP. Things were going slow until August 2019 when there talk of Libra’s currency was floating about the internet. Suddenly, as The Block reported, China’s Central Bank became ready to “soon release” their digital currency.
The Chinese renminbi is already a powerful currency, with central banks holding about $213 million worth in the first quarter of 2019. The country also has been very progressive in becoming a cashless nation. In a recent Unchained Podcast, hosted by Laura Shin, media figure Dovey Wan said that China was looking to add privacy features to their digital currency that, heavily used, Alipay doesn’t give to users.
Because of China’s knack for digital payments, it’s not surprising they are looking like the first to the chase when it comes to a digital dollar. It has not been specified what tech will support the currency, but recently, Chinese President, Xi Jinping expressed expressed support for Blockchain technology.
The U.S. is slow, but fear is driving change
After Libra’s congressional hearing, a top U.S. federal official spoke out about the U.S. considering a digital currency. This could have been triggered by conservatives at the Libra hearing mentioning feeling threatened by China beating them to the tech, or because a former CFTC chair had just published an Op-Ed encouraging the U.S. to create a digital dollar.
The U.S. is pretty far behind in adopting digital technology, being one of the most strict nations in terms of crypto regulations. One thing that the U.S. has going for it is that Facebook is an American company. The Libra Association’s strongest members are made up of mostly big U.S. corporations. This is likely one of the reasons that China wants to be the first to create a digital currency.
Still, Libra is a polarizing topic in U.S. politics and Facebook won’t release it until regulators approve. Unfortunately for Facebook, regulators aren’t very keen on the coin.
Why digital cash is a threat to nations who fall behind
Let’s be clear, no cryptocurrency or blockchain project have been able to test a userbase to the extent of what a digital currency would acquire. That being said, EOS transacts faster than Visa, Ripple has proven to save time and money for companies like MoneyGram and this type of tech is still in it’s youth.
So, disregarding the unproven effectiveness of servicing a majority of the world, let’s imagine everything works out. If China is the first to release a scalable, cheap, efficient and easily accessible digital currency, then then everyone would have some sort of incentive to use it.
The digital token would be as stable as any other national currency because of central bank backing. It would be ideal for sending money across borders, it would be cheaper for retail merchants too transact with, and even when sending money to a friend, users wouldn’t have to pay any sort of significant fee to receive it instantly.
China would have no reason to keep the currency within their borders. In fact, Alibaba, owners of Alipay would be one of the first to receive the currency and Americans can download Alipay on their smartphones. It would take significant effort for every retailer in America to accept the currency, and for American employers direct deposit salaries into it, but it would be possible if America never caught up.
There’s tons of economics behind why the U.S. government wouldn’t want their citizens using Chinese currency, but just believe that they do not. It would eventually lead to a weaker dollar, which could change global industries and power structures.
Back in 2009, China and Russia were expressing their desire for a global reserve currency to provide more stability than relying on the U.S. That never worked out, and now they’re both more progressive with financial tech than the U.S.
I wonder why.