Posted 2 years ago | by Ben Armstrong
Why Did the PBoC Back-Off the Digital Yuan?
Don't look for any certainty around the introduction of China's Digital Yuan. Despite all the fanfare around a Central Bank Digital Currency (CBDC) in the worlds second largest economy, it looks like the project is being underdeveloped at the highest levels, and merchant banks aren't willing to allow the public to play with the currency.
As far as testing goes, the Chinese CBDC is only being rolled out on a limited basis in some of the most developed areas of China. The People's Bank of China (PBoC) has stated that the new digital currency won't be convertible into cash, which raises some pretty serious questions about its utility.
China is grappling with a geopolitical situation that is growing more complex – and it may face open war on two fronts in the next 18 months. Chinese forces are already being pushed back on the Indian border – which makes its bellicose stance in the South China Sea look increasingly untenable.
Can New Money Win a Real War?
The Line of Actual Control (LAC) in Ladakh is a long way from Beijing – but it looks like President Xi thinks that taking a tough stance on India's border is a good idea.
As China loses ground on a patch of land that probably won't be part of the Middle Kingdom in a decade – we have to wonder if new Chinese digital money will help the CCP to maintain its aggressive stance with its neighbors.
India and the USA have shown an increasing willingness to challenge China politically, and also begin a deeper level of military cooperation.
The US Air Force has the ability to penetrate deep into Chinese territory via the Diego Garcia base – especially with India clearing the way for B2 bombers that can carry loads of nuclear bombs.
One of the biggest assumptions that has been made up to this point is that established powers won't respond to Chinese aggression with atomic weapons, but this could be a very foolish assumption.
The US won't sit and watch China introduce a global currency as it fires cruise missiles at the most expensive Navy on Earth – and we may see an atomic response to Xi's ridiculous foreign policy – regardless of whether we are taking about a CBDC – or the South China Sea.
An Unlucky Strategy
China was given an incredible amount of trust by the US government – but those days are officially over. With the new restrictions on Chinese diplomats, as well as the US's orders to shut down Chinese political entities in the USA, it is fair to say that the US is looking to hobble China.
The strategy that China has used to cement itself as the world's second largest economy isn't going to last – as the nations that have accepted Chinese money will take over the projects themselves, and not pay the bill.
China's navy won't have time to respond with any gunboat diplomacy, as the USA is more than happy to use any opportunity to push the Chinese military machine back a few decades. In a scenario wherein the Chinese successfully sink a US aircraft carrier, look for a nuclear response to wipe China's economic potential off the map.
When times were good, a Chinese challenge to US power was tolerated for the good of the global economy. Now that the Chinese are floating a CBDC and using military adventurism to intimidate their neighbors – it is highly unlikely that China will remain in its current position for any amount of time.
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