Posted 7 months ago | by Ben Armstrong
China's Digital Yuan isn't a Great Idea – Watch it Implode on the World Stage
China is pushing the envelope with its Digital Yuan (DY) program – especially if it plans to launch the currency globally. Some commentators have proposed that the DY program could challenge the reserve currency status of the US dollar – which is laughable.
No, no Chinese currency – digital or otherwise – will supplant the Western fiat mess, as both will go down in flames over the next decade (or the next 18 months).
There are some real issues when it comes to China and an international currency.
A string of 'experts' have recently gone on the record about how important it is for the DY to be freely convertible on the global marketplace – without talking about why that isn't going to happen from both a supply or demand perspective.
China isn't Going to be a Global Currency Powerhouse
The legal systems in the USA and UK aren't perfect. By no means are they perfect – but when compared to the legal system in China – if it can be called that – the USA and UK have perfect legal systems.
This might not be the first thing you think about when you wake up in the morning, but it is a huge deal when it comes to a reserve currency. People who hold assets that are denominated in a reserve currency (say – corporate bonds) want to know they have some amount of legal recourse if things go sideways.
For the last few decades Hong Kong has bridged the gap between Western capital and Beijing's throngs of cheap labor – but that arrangement ended over the course of 2020. Now SAR is pronounced 'CHINA', and thugs with badges are blasting little girls into the ground.
In fact, some nation are warning their citizens that they may face random detention if they visit china. You read that correctly – random detention – like the cops just arrest and detain you just 'cuz. Sitting in Chinese jail – maybe for the rest of your life – and there may not even be any charges.
Australia recently evacuated two journalists from the Middle Kingdom, after they hid out in the Aussie embassy for a few days. This looks pretty bad from a country that wants to be the go-to challenger to the West – and it probably isn't going to work out well.
So...Chinese 'legal system' – not so great. Your chance of getting a fair shake in Chinese courts...nonexistent. Is this the kind of country that has a reserve currency – no.
But Wait – There Are Way More Problems!
China is well known as a country that openly manipulates its currency – and this probably isn't going to stop with the introduction of the DY. In fact, China could use the DY to obtain decentralized currency, and start playing around in the token markets with its reserves.
It would be difficult to imagine a scenario where other nations would actually trust a digital version of the Chinese currency – and its use as a stablecoin seems even more remote. There are some countries who might be compelled to use the DY – as many poor nations have taken on loads of debt from China.
The Political Question
One aspect of an international Yuan that isn't widely discussed is how China would align its currency with its international agenda. We know that China has been aggressively developing developing a military presence in the South China Sea, and that it also arms its allies with advanced weapons.
Much like the USA, China would likely use its monetary system as a part of its geopolitical strategy. Clearly, this isn't ideal for a reserve asset, especially given the control China would have over the clearance system – regardless of whether it was based in blockchain or not.
There is little doubt that the USD, EUR, GBP, and JPY are deeply flawed system – and they won't last much longer. China's DY isn't going to replace the Western global banking monopoly, and that leaves investors in a very rough spot. It is probably time to face facts – and see that the global economic situation is absolutely abysmal.
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