Could China’s cryptocurrency replace the U.S. dollar as the world currency?
China is the world’s second-largest economy — but not for much longer by the look of things.
There are huge advantages to providing the world with what amounts to it’s default currency — a role the U.S. dollar has so long fulfilled no one can recall what the world was like before that. And significantly the U.S. has long become accustomed to taking the huge benefits it bestows for granted.
For some time economists have been discussing that the day may come, sooner or later, when China’s economy would overtake the U.S. Meanwhile it seems China has just made the most significant move for technology since the ‘Space-Race’ and so since the dawn of the modern world, let alone fin-tech.
China: Ahead of the queue to provide the world’s first mainstream cryptocurrency
They’ve just jumped to the head of the queue to provide the world with it’s first mainstream cryptocurrency. In an announcement just over a week ago (Jan. 25, 2016) they publicly commit, as follows:
“The digital currency team …. should clarify the strategic objectives of central bank digital currency issuance, thoroughly research key technologies, research various applications for digital currency to help the central bank introduce a digital currency, as soon as possible.
and, also according to Cryptocoin News (emphasis is mine)
“Furthermore, insights from the meeting state a consensus that the issuance of a national digital currency by the central bank would have ‘practical and far-reaching historical significance.’
Despite the, unsurprising, lack of coverage since this may turn out to be an understatement, especially as to the immediacy of the implications, because this move has the potential allow China to not just inch-past but leapfrog the USA in pretty short order — in a few years rather than a decade or two. Maybe faster.
Unsurprising because this would instantly launch cryptocurrency technology, which is maturing fast at the tech level (and would mature faster still with the Chinese state behind it) from a niche, where only the experts really understand it, and its implications, instantly into the mainstream. Leaving the rest of the world — including the USA and the fin-tech leaders, the UK, on catchup.
Some of the benefits extolled by the announcement include:
- Reducing costs incurred during issuance and circulation of traditional fiat currencies
- An increase in the transparency and convenience of economic transactions
- The curbing effect on tax evasion, money laundering and other criminal acts
- Improve the central bank’s control over the money supply and circulation
- Breaking barriers to bring financial solutions for those unbanked in the country
— From Cryptocoin News (emphasis is mine)
While I’ve previously made the case (in the article: Fin-tech: Why is this irresistible force sweeping aside ‘immovable’ opposition to a future beyond banks) that fin-tech is now an unavoidable matter of international competition, driving it’s adoption and more appropriate regulation, this announcement should be seen in a similar light to JFK’s tasking of America to be the first to the moon — and kicking off a space race that transformed the rate of development and take up of a wide range of technologies across the world.
The new space race
This is the new space-race. Money is the ‘space’ and fin-tech is the technology. However all may not be lost for “the land of the free” (or the fin-tech leaders in the UK). For there seems to be a fatal flaw revealed by the list of benefits outlined in China’s announcement. They are clearly planning a cryptocurrency with a central-bank re-engineered back into it — after the pioneers behind Bitcoin specifically engineered it out — this being their cornerstone.
This would not, necessarily, stop the new currency, controlled by The People’s Bank of China, becoming an international or even the world’s default currency — indeed given the advantages it would have, this be a likely outcome — in the absence of something better.
Its ‘far-reaching historical significance’
And the prize is not just to replace the U.S. dollar as the world’s default currency. A successful cryptocurrency, especially the first successful mainstream cryptocurrency could, of it’s nature, play a much bigger and more ubiquitous role with profound implications and ramifications in the short medium and longer terms.
Which leaves the door open because the ‘something better’ that remains open to the U.S., UK (or even some other enterprising nation-state such as Estonia, perhaps leading the way for the EU) is the original intent of the Bitcoin — to remove the role, and control, of the central bank — a backdoor for the old-economy and central control, manipulation and routine, legal, abuses.
A backdoor In China’s cryptocurrency?
The argument rumbles on but few recall that it was the action of one man, Phil Zimmermann, the creator of a technology widely known and used as PGP (Pretty Good Privacy) who changed the game on back-doors for America and the world back in 1991 by putting PGP out on the Internet and ‘into the wild.’ The arguments, and initiatives, rumble on to this day with states still trying to bolt this door long after that horse bolted.
Who will benefit the most?
This is closely parallel. It’s almost inevitable that the world will have a cryptocurrency free of a backdoor, state control and a central bank. (It probably wont be Bitcoin — but don’t count it out yet, especially if the USA or another nation-state should decide to get behind it). It’s now a question of where it will come from and who will benefit the most.
China has just made this pretty much inevitable giving other states little choice but to compete or be left behind. The new (money) space race starts now.