The Chinese Communist Party (CCP) has been pushing its digital currency project in recent years.
The CCP’s central bank has been conducting research on digital currencies since 2014. In August 2019, a report by the CCP’s mouthpiece Xinhua News Agency said the central bank’s Digital Currency Research Institute, established in 2017, had so far “applied for 74 patents involving digital currency technology.”
CCP Seeks ‘One Globe, Two Systems’
Liang Xinjun, a Chinese expert in the field of virtual and digital money and co-founder of Fosun Group, said in a speech on April 30 that “realizing seamless conversion of sovereign digital currency (Digital Currency Electronic Payment, or DCEP in short) and community digital currency in more countries, and then realizing global payment circulation, is a financial solution of the ‘One Globe, Two Systems.’”The “One Globe, Two Systems” mentioned by Liang refers to both the communist totalitarian system represented by the CCP and the Western democratic system, represented by the United States, that have coexisted in the world.
CCP’s Global Financial Hegemony Ambition
The CCP set up CIPS (Cross-border Inter-bank Payment System), which is its yuan-based, cross-border payment system, similar to SWIFT (Society for Worldwide Interbank Financial Telecommunication) in Shanghai in July 2015.“The system now covers 94 countries and regions on six continents, and CIPS’s business actually covers more than 3,000 banking legal entities in 167 countries and regions.” As of this year, “the cumulative payment amount reached 151 million yuan, and the business covers many countries and regions such as Hong Kong, Malaysia, Australia, and South Africa.”
But the CCP also realizes that it’s not in a position to immediately threaten the U.S. dollar in the current international payment system. The CCP’s vigorous push for digital currencies and strict regulation of cryptocurrencies indicates that it’s stepping up its efforts of research and promotion in these areas in order to use them as a financial weapon against the United States.
“Contrary to what many think, China does not oppose blockchain technology,” Dovey Wan, founding partner at Primitive Ventures, “a global venture investment firm with a focus on blockchain and related technologies,” wrote at the beginning of her article.
She was of the opinion that the digital Chinese currency can have great political and economical influence.
“If successful, this digital RMB (yuan) project could expand the [CCP] central bank’s influence over both the domestic and international economy. It has broad implications for the geopolitics of money and for the future of private cryptocurrencies such as bitcoin,” she wrote.
In her analysis, she indicated that blockchain technology can help the CCP’s digital currency project.
“Thanks to blockchain’s traceability and programmability, PBOC [People’s Bank of China, the CCP’s central bank] can write rules at the code level regarding where digital RMB can and cannot flow to,” she wrote. “If it wants to cool down the housing market, for example, it can simply set a program preventing digital RMB from entering the real estate sector.
“A digital RMB could even strengthen China’s influence overseas,” she added.
“If the One Belt, One Road initiative succeeds, a digital, borderless, stable currency could facilitate international trade among its 60-plus member countries. This, coupled with the fact that China is the biggest creditor to Venezuela and it holds over 14 percent of African countries’ sovereign debt, would position it to offer a digital RMB as the next reserve currency of emerging-market economies.”
The promotion of a digital Chinese currency would “be highly synergetic with China’s rigorous effort of de-dollarization: reducing U.S. dollar asset in both its foreign exchange reserve, largely increasing its gold reserve and selling off U.S. Treasury debt,“ she wrote. ”These moves could increase tensions between U.S. and China and might even force the U.S. to pursue a similar digital model for the dollar.”
“Digital money is only the surface, but a resetting of the payment network is the far-reaching ambitious plan.”
The article argues that the CCP is focused on SWIFT, “the ubiquitous currency settlement network behind the hegemony of the U.S. dollar,“ because ”it is the technical support for the dollar to become the U.S. dollar,” and because “this is the technical support for the U.S. dollar to become U.S. gold.”
The article also states: “The reset of a payment system is much more important than constructing a digital currency. If this open-source system of DCEP is done well enough that other countries can safely and quickly issue and transfer their local currency on this public chain, then it will be easy to build a new financial system. ... That would be a ground-breaking achievement.”
The article noted that “the dollar-dominated fiat world is in constant financial crisis and should have more benign competitors.” It said that the CCP’s “DCEP has a more flexible open module,” and seeking DCEP dominance “should be China’s biggest ambition on digital currency.”
“Any stablecoin that wishes to become a widely used payment instrument in the future must be subject to strict regulation,” Li said.
In general, a stablecoin is a cryptocurrency that is collateralized by the value of an underlying asset.
Responses From the US
As reported by The Epoch Times in April, Kyle Bass, founder and chief investment officer of Dallas-based Hayman Capital Management, warned that the CCP was using its digital currency as “a Trojan horse against western democracies.”He said that “the free world needs to outlaw it.”
Peter Thiel, a co-founder of PayPal, voiced his concern over the CCP’s use of cryptocurrencies.
“Bitcoin should also be thought [of] in part as a Chinese financial weapon against the U.S.,” he said at a virtual event held for members of the Richard Nixon Foundation.