2 Global Superpowers Exploring Own Digital Currencies

Recent reports say that China is planning on deploying their own digital currency between 6 months and a year from now. Edith Cheung, partner at Proof of Capital, made this prediction on CNBC on November 20th, and she seems very sure of it. 

It is known that China has been working on a virtual version of the yuan for more than a year, but as is standard when dealing with China, officials have not provided any on-the-record comments on the topic. 

Last month we saw Chinese President Xi Jinping announced that he would like to see China do much more work with blockchain technology. This initially caused tons of people to buy Bitcoin, although later comments that clarified a sustained disinterest in cryptocurrencies brought the price back to its regular prices. 

This development would make China the first country to have a digital version of their currency. Other predictions say that the digital yuan could be released as early as 3 months from now, but most of these rumors are unbacked as of yet. 

The Race to a National Digital Currency

One implication of China’s impending digital currency is that it puts it at a competitive advantage to the US. Right now, the United States is way behind due to their fairly anti-crypto stances. 

A cashless society has been a dream in many countries for a while. It makes it easier to track the flow of consumer spending, as well as better preventing slippage from tax evasion. 

Related to all of this, on November 19th, current Federal Reserve Chairman Jerome Powell published a letter regarding central bank digital currencies and their place in the USA. The gist of his comments was that the Federal Reserve was continuing to analyze the costs and benefits of developing a USD digital currency, and were not sure what to do yet. 

The USD has the most to lose, as they are currently the de facto currency of the world. Any other country (or company in the case of Libra) that can develop a strong digital solution would have a major advantage compared to the USA, as much of the United States trade deficit is financed by printing more USD and having that currency be in high demand. 

Implications of These New Developments

On a more granular level, it isn’t clear how the financial stability of a nation would be affected with a digital currency in circulation. Monetary and fiscal policy have hundreds of years of history, and disrupting that could prove to be momentous. 

Another interesting question is whether holding the digital currency would earn interest in the same way that it currently does when deposited at banks. These are all issues that would need to be sorted out before anything could be developed. 

Cryptocurrency evangelists would say that a national digital currency presents major privacy and censorship concerns that are not present in many digital currencies. If created, the Fed would be able to keep a record of all the transactions executed with the new digital currency. This is one reason why you will see supporters of crypto still pushing Bitcoin over national currencies.