China is now testing its digital version of the yuan after five years of development.
Replacing Bitcoin?
Bitcoin, you may recall, was the original digital currency, leveraging the highly innovative distributed ledger technology known as blockchain. Not only has Bitcoin’s more than a decade of existence and growing use around the world demonstrated the power of digital currency, but Bitcoin has continued to enjoy dominant, first-mover advantage in the cryptocurrency space.As of yet, however, no nation has issued a digital currency. But China will likely be the first to do so. If the test run is successful, China’s “digital yuan” may well replace the paper one sooner than later.
China’s First-Mover Advantage
But more importantly, the digital yuan is likely to set the pace for other nations and organizations. In fact, China’s transition to digital currency could well give it some first-mover advantages, such as enabling it to challenge U.S. global leadership in a variety of critical areas.Such a shift could even trigger a major shift in the global balance of power.
Over the past 70 years, the dollar-based system has given the U.S. dollar tremendous advantages and American foreign policy unrivaled power and influence over other nations. About 80 percent of all transactions on the global market use dollars in one way or another. That fact alone has made dollars a necessity for international commerce.
Undercutting US Foreign Policy
The dollar-based financial system also gives the United States tremendous power to persuade, reward, and punish countries around the world. Russia, Iran, and North Korea, for example, are all currently under U.S. sanctions. Consequently, they have very limited access to the global financial system and is at least a partial reason they are all under economic duress.A digital yuan would be able to bypass the dollar-based financial system altogether and perhaps greatly diminish the global demand for dollars. It could give China and its trading partners such as Russia, Iran, North Korea, and other anti-U.S. regimes a way to avoid U.S. economic sanctions and currency restrictions to a much greater extent.
A digital currency would enable China to sell more arms, more sophisticated technology, and other embargoed items on the world market and to nations adversarial to U.S. interests.
Shifting Financial Gravity to Beijing
Given China’s preeminent trading status with the European Union, its digital yuan backed by economic might—and, as some speculate, gold—may well help shift the global center of financial power to China from the United States. Whether intended or not, the digital yuan may quickly challenge the dollar as the world’s preferred currency.The result of such a shift could be very destabilizing very quickly. If the dollar is suddenly out of favor with major trading nations of the world, the United States would no longer be able to afford to finance its hegemonic role in the world.
Targeting US Hegemony
As a result, naval embargoes or perhaps other physical or military responses to threats against U.S. interests may be necessary. When the current order and all that supports is removed or greatly weakened, as is happening in the wake of the CCP virus pandemic and expansionist Chinese foreign policy, global instability and overt competition over resources, markets, and territory would seem to be a direct or indirect consequence.China’s move to a digital currency is by no means the cause of the rising tensions between Beijing and Washington. The Chinese regime’s longstanding goal has been to dethrone the United States and replace it as the global leader.
The digital yuan is but one more weapon aimed directly at the dollar and American hegemony.
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