Until now, to an extent, most policy debate in the free world has tended to dismiss the crypto phenomenon as esoteric, illicit, or reckless. This is superficial and misleading. The free world governments need to get serious about accepting and directing the crypto innovations in a positive and creative direction that can benefit their economies and societies.
In the free world, there has been a division between the private sector that has been accelerating the use of cryptocurrencies and the government and central bank players who are uncertain and nervous about any shift away from the long-established fiat currencies. One aspect of this division is a tendency on the part of private-sector financial players to assume that their gains can only come at the expense of the now existing and dominant financial establishment. This tug of war means that the potential far-reaching benefits of cryptocurrencies are not being adequately discussed or incorporated into long-term planning.
In contrast, China has seized the bull by the horns and is driving ahead with top-down planning that could well revolutionize not only China’s economy but also the entire global economy and do so in a way that would strengthen China’s global power and influence.
In particular, using a state-guided cryptocurrency plan, Beijing might well come to dominate payment platforms and even change the structure of global reserve currency balances. It would also undoubtedly establish enormous influence and even control over the data that’s essential for the effective use of artificial intelligence.
The fact is that the new technologies driving the crypto movement such as digitally distributed ledgers of transactions known as blockchains are rightly disrupting a financial industry that has been too long making excessive profits from inefficiency. This means the move to crypto is not going to go away.
So far, the broader penetration of cryptocurrencies into global use has been slowed by a lack of complete trust, concerns over regulation, and price volatility.
While America and the rest of the free world have been dawdling, China’s officials and Chinese Communist Party leaders have come to understand the potentially transformational power of crypto and are adopting it rapidly and in a total and highly top-down directed manner. It is as if Beijing is directing its financial army to take the financial ramparts while they are completely undefended.
Not only will this enable China to develop quicker and better payments systems and a central bank digital currency that is likely to become popular internationally. It will challenge the U.S. dollar’s status as the world’s main reserve currency.
The implications of such a decline in the importance of the dollar are vast both economically and geo-politically. In such a situation, the United States would not be able to sustain its customary and huge trade deficit. The value of the dollar would have to fall dramatically. U.S. consumers would not be able to afford anything like their present consumption levels or their present standard of living. The United States would instantly become poorer as China becomes richer. Global investors would flee dollar-denominated assets in favor of Euro, yen, and RMB assets. The U.S. military would be forced to withdraw from its far-flung bases while China could easily move more of its forces abroad. The South China Sea would indeed become a Chinese lake. Indeed, the whole Indo-Pacific region might well become a Chinese lake. China’s ability to extend its Belt and Road projects around the world would be greatly enhanced.
In addition, the dominance of the crypto world would hand Beijing dominance of big data as well. Such dominance would almost assure China’s dominance of artificial intelligence and all fields related to it including strategic national intelligence.
In other words, the United States and the rest of the free world need to take the cryptocurrency movement seriously and establish global standards and procedures before China does it for them.
Clyde Prestowitz is an Asia and globalization expert, a veteran U.S. trade negotiator, and a presidential adviser. He was the leader of the first U.S. trade mission to China in 1982 and has served as an adviser to presidents Ronald Reagan, George H.W. Bush, Bill Clinton, and Barack Obama. As counselor to the secretary of commerce in the Reagan administration, Mr. Prestowitz headed negotiations with Japan, South Korea, and China. Mr. Prestowitz’s newest book is “The World Turned Upside Down: America, China, and the Struggle for Global Leadership,” published in January 2021.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.