Beijing takes the lead in central bank digital currencies (CBDC) and the new era of expanding monetary and currency control around the world.
A New Form of Money
Bitcoin was the first of a new form of money that was digital-based, not paper, coins, or any other form controlled by any financial institution. Cryptocurrency, via its many offerings today, is anonymous money that can be used throughout the world over the internet, beyond the control of central banks.That’s the “crypto” part of the name, as “crypto” means “hidden.”
An Antidote to Central Banks’ Loose Money?
Of course, the cryptocurrency world is complicated, with too many aspects to go into detail here. But it’s helpful to consider why digital currencies came about in the first place.Bitcoin was the world’s first cryptocurrency, created, as you may recall, during the global financial crisis of 2008-09.
The crisis was largely brought about by risky, unsound policies by the Federal Reserve and other central banks and financial authorities around the world.
Loose monetary policies—such as printing money, lowering credit thresholds for borrowers, and ultra-low interest rates—distorted the U.S. housing market, triggered skyrocketing stock prices and prices for dollar-denominated goods and services around the world.
That dynamic is easy to understand. In a dollar-based global economy, when more dollars are printed by the Federal Reserve and injected into the economy, every dollar becomes less valuable, so prices for goods and services in dollars rise.
When such currency manipulation continues to the extreme, it often results in economic catastrophe. Markets and economies overheat and then collapse. Unfortunately, billions of ordinary people pay the price as their investments lose their value almost overnight.
Avoiding these recurring meltdowns was the idea behind the emergence of Bitcoin.
A Threat to Global Banking–Including the PBOC
Naturally, without taxes and any sort of regulatory authority, cryptocurrencies enjoy worldwide appeal—for both legal and illegal transactions. But their very existence threatens the power of the global banking system.Predictably, central banks, including the Federal Reserve and the PBOC, have been looking for ways to combat them.
In some aspects, digital currencies such as the digital yuan are similar to well-established cryptocurrencies such as Bitcoin and others. But in critical areas, the emerging nationalized digital currencies are actually the complete opposite of cryptocurrencies.
The reasons are simple and powerful.
Imagine, for instance, raising taxes on income or on specific goods or services. There would be no need to collect it in the traditional way, as the PBOC just deletes from your digital account. If you were a political dissenter, for example, your bank account may well be frozen or your assets seized with the click of a button.
The CBDCs Are Coming
But China isn’t the only country with CBDCs in its plans. The United States is right behind it with the digital dollar, as is the European Union and many others.That prospect isn’t a happy one, either.
Like China and its digital yuan, the digital dollar is coming, sooner than later.
One may rightly wonder, is communist China a picture of our own future?