There are times when I feel like I no longer understand anything. Take money, for example. No one really understands money, so I've never felt too bad about not understanding it myself. Still, at least I had a rough idea of why one thing might be money and another thing wasn't. Sadly, I'm not even sure of that, anymore. Here is the Wall Street Journal today on China's shiny new digital currency:
It might seem money is already virtual, as credit cards and payment apps such as Apple Pay in the U.S. and WeChat in China eliminate the need for bills or coins. But those are just ways to move money electronically. China is turning legal tender itself into computer code.
Huh. China isn't merely moving money digitally, it's turning money itself into digits. I have no idea what that means. Then there's this:
China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user.
So . . . it's not a blockchain currency or anything like that. It's just stuff issued by China's central bank.
But doesn't China's central bank already issue money? Yes, and of course it issues much of it digitally, that being how the world works these days. We could refer to this as digitally issued yuan. The new currency, by contrast, is digital yuan.
So what's the selling point? Here's one possibility:
Digitization wouldn’t by itself make the yuan a rival for the dollar in bank-to-bank wire transfers, analysts and economists say. But in its new incarnation, the yuan, also known as the renminbi, could gain traction on the margins of the international financial system.
It would provide options for people in poor countries to transfer money internationally. Even limited international usage could soften the bite of U.S. sanctions, which increasingly are used against Chinese companies or individuals.
Go ahead and call me cynical, but I don't think China cares even slightly about the ability of people in poor countries to transfer money. In fact, as far I can tell, the real reason behind the e-yuan is that China feels that its citizens are just too damn free. The new currency, since it's purely digital, can be tracked perfectly. The government will know about every penny you spend, and just as e-books are merely "licenses," rather than actual books, the new yuan is programmable. "Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump start."
Uh huh. And check out this non-sequitur: "Beijing is also positioning the digital yuan for international use and designing it to be untethered to the global financial system." That would be a helluva trick, wouldn't it? International but not tied to anything actually international. It makes no more sense to me than it did for the old soft currencies in the communist bloc countries.
Long story short, I don't see anything new here. What I see is a recognition by China that it wants more control over its citizens and it's too late to get that with the current incarnation of the yuan. The horse has already left that particular barn. It's better to start completely over with a currency that keeps everyone on a tight leash.
But that only works if the e-yuan doesn't become an international currency. So perhaps this means that China is planning to have two currencies going forward: the yuan for international use and the e-yuan for domestic use.
WARNING: No one else seems to be interpreting the e-yuan this way. This probably means I don't understand what's going on. But then again, maybe no one else does either.
Bitcoin is Chinese, but it's a globalist crypto currency. China's government does not want a globalist regime. That is the problem people do not understand.
You're an idiot.
@n1cholas
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Incoherent blithering on.
@FMias
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I'm just guessing here. I have observed, while travelling in China, that many people keep far more cash than we do in America. I've seen this in some Chinese immigrants, too.
There are lots of reasons for this, and I don't want to slander Chinese people. And yet, one of the points of cash is that nobody sees it but the people exchanging it. You avoid sales tax and income tax with it.
Perhaps the point of the new currency is that it can't exist in physical form? Which allows them to institute sales taxes and income taxes, etc?
I mean, that's kind of what you're saying, right? But maybe a more practical side of it.
And this is exactly, as Kevin already said, why the Chinese government wants to track the e-money it issues. Putting an expiry date to it makes it even more evil.
Of course, if enforced, this will probably lead to a black market with its own, supposedly untraceable, e-currency.
As their own saying goes: May you live in interesting times.../s
As it turns out, that phrase (may you live in interesting times) is not Chinese in origin. I thought so for decades, so no shaming here.
https://en.wikipedia.org/wiki/May_you_live_in_interesting_times
I've heard it coupled with two other "blessings" that are in fact, curses in works of English-language fiction.
"May the gods take an interest in you"
and, the worst,
"May your every wish be granted"
I don’t see how a shadow electronic currency would work. More likely you’d see the kind of situation like in the USSR and elsewhere where wealth was held in US dollars to the extent possible and exchanged for the (Official) non-exchangeable currency as necessary.
It would require a corrupt means for acquiring the local currency and an extensive smuggling system similar to the situation with fixed rate gold.
But essentially you’re licensing money from the state in much the same way that you license (but don’t own) ebooks.
Wouldn't this allow the Chinese to manipulate the digital currency against the physical currency, as if through an exchange rate, to stabilize or enhance different sectors of the economy, or regions of the country?
"It makes no more sense to me than it did for the old soft currencies in the communist bloc countries."
What? Those currencies most emphatically were *not* in international circulation. All of the Soviet bloc countries had strict currency controls that put very tight limits on the export of their currencies, and on the possession of foreign currencies by their citizens. There was a bit of circulation of those currencies among the Soviet bloc countries themselves, but that was mostly at the government level. Those soft currencies were the very antithesis of global.
That’s a good point. I also remember all the hassles about taking GBP out of the UK when I was a boy and needed to meet up with my family for vacations. Very strict controls.
Money with an expiration date is not money. No one will want to be paid in money that can suddenly be declared to have no value. I would be surprised if even a brutal dictatorship can pull that off. I'm sure the Chinese have smart people working on this but it sounds insane to me.
"Money with an expiration date is not money."
Well, what do you make of the longstanding practice of people buying gift cards that expire. And, in fact, we know that much of that "money" never gets spent and the card issuer just pockets it.
The only thing that put a stop to that was legislation against the practice. But there was clearly a strong market for this kind of expiring "money."
"a strong market" for money that expires.
No, the "market" was for a gift that was slightly more personal than an envelope with cash in it. That too many of these "gifts" evaporated over time or expired wasn't supposed to be part of the deal.
I stand by my statement. Gift cards are not money. If you had a store would you accept payment in random gift cards? Maybe you would at a steep discount. I think this just proves my point really.
Gift cards have money like attributes, and can indeed function as money that we economists use in analysis (store of value, transfer).
Analytically, getting away from moral posturing and non analytical knee jerking, gift cards can be a form of money.
Gift cards aren’t money, either. They are basically a grift.
No, they can be money. "a grift" is a non-sequitur. They can be but that's irrelevant to the analysis of their potential as a money, a parallel money as it were.
As of 2009, gift cards can’t expire for at least 5 years in the US. (Thanks Obama!) And in some states - California for example - they can’t expire at all under most conditions. That’s very different from China having the ability to expire money at will.
https://www.thebalance.com/new-gift-card-rules-for-expiration-and-service-fees-960186
https://www.dca.ca.gov/publications/legal_guides/s_11.shtml
It most certainly can be.
Any money can be declared to be no value (for a given purpose or generally), it's happened any number of times in history in fact. As it happens this is usually disastrous all around and thus avoided.
Whether the Chinese can make this work practically rather depends, it seems likely it will have practical limitations given the structure of the Chinese economy at least in the near-future.
Because it's digital, they'll rig it so international holders never have an expiration. Only those people too poor to have access to other currencies will see the expiration.
Money with an expiration date is not money.
It would be a great tool for anti-recessionary stimulus measures. Spend it by such and such a date or it's worthless (and also render it non-depositable into the initial recipient's bank account).
My understanding of this is that one of the primary motivations seems to be that it allows control of the fungibility of currency. You know how you can selectively give an app on your phone access to various bits of personal information? The idea with this currency is that it allows the same sort of access control regarding transactions: only those authorized to know about a transaction can see it. Of course, since the central government runs the whole shebang....
One other thing: Blockchain is a technology for creating irrevocable audit trails. Blockchain, or something equivalent, is a prerequisite for the anonymity supported by Bitcoin et al., but there's nothing about blockchain that is inherently anonymous. So it's certainly possible for PBOC to be using blockchain as part of their implementation of the new currency.
Possible, but no need. They can just use a token system. Much faster and cheaper than blockchain, but the downside is it must have a central, trusted broker. Not a problem for a government China's size.
Found a practical use for nfts.
Once in a while I'll do a spelling correction, because I am a pest at heart. It's "non-sequitur".
I'm shocked no one is bringing up US sanctions, esp. under the Trump White House. The US can block ALL bank transactions by a company if they try to buy oil from Iran. Or sell "pipes" (rocket fuselages) to North Korea. China would LOVE to do both, but as long as international banks all use US dollars and the US controls the international banking protocols in USD we can cause havoc if companies or nations break our rules. https://www.bloomberg.com/opinion/articles/2020-08-13/china-banks-bowing-to-u-s-sanctions-shows-dollar-s-power
This would indeed be the major motivator for the international side. And in fact one can see this is clearly understood by the US authorities as the US State Department recently launched a procurement for consultants aimed at specifically IDing possibility or risk of switching in developing countries from SWIFT to the Chinese platform.
I think Kevin is spot on. Almost everything the Chinese government is doing these days is designed to make China even more totalitarian. Even COVID was used as a cover to do this (although it helped manage the disease also it seems unclear whether the primary objective was to protect the population or to control it). So to use a new currency to keep the population under surveillance is right in line with what they hadesve been doing.
BTW the US government does not care in the least what you buy but they still are capable to collect sales tax (and other Western governments to collect VAT).
I would also predict that money with an expiration date will lead to a run on investments with no expiration date (real estate, works of art, tulips maybe?).
So, to boil it down, China's creating its own digital currency to:
1) Facilitate foreign transactions that the CCP wants to encourage.
2) Stabilize/control prices to effect macro policy.
3) Maintain total control over its people and foreigners who work with them.
4) Obviate other digital, particularly crypto, currencies that it can't watch over or control.
How about a contrary viewpoint
One of the BIG problems in the USA is banking and money
A LOT of Americans do not have a bank account - that makes things very difficult for them both to pay for things and to receive money
One solution would be to go back to the old days where the Post Office was that bank
The Chinese have come up with another solution - electronic money with no need for a bank
This is actually exactly what millions of AMERICANS need
The digital cryptocurrency like Bitcoin is no use at for this as its so volatile
Will millions of poor Americans end up using this currency????
Yeah, it's unfortunately going to be too useful to ignore. US will probably have to issue a digital dollar.
This is magical thinking and nonsense.
The electronic issuance does not remove a bank account in function, it merely shifts where it may be held or opens up a different direct option (in central government versus a private entity), although really structurally nothing prevents this being done via the Post Office right now, it is ideological not practical.
The digitalisation effects little of what you're banging on about - persons too poor to have a bank account would need to have the e-infrastructure to effectively access their e-money which... really does not change anything in this (never mind the down-sides of e-money for the poor who often have to deal with cash-transactions).
A Post-Bank would as the postal network has enough reach to address the problem without engaging in Techno Magical Thinking.
Except that Bitcoin isn't anonymous. It is more accurate to say it is pseudonymous. If an address can be linked to you (by oh let's say spending patterns), then everything you've ever done with Bitcoin is open to the world.
Pretty sure "designing it to be untethered to the global financial system." means untethered to the existing american controlled global financials system, but tethered to a new chinese run global financial system.
Precisely correct.
China won't be the last country to do this, but rather the first of many (probably all, eventually) including the US.
I, too, was confused about this, but this explainer video set me straight! https://youtu.be/dErRj6V8_xQ
It's basically Itchy and Scratchy money!