BitOoda Regulatory Analysis, 4/20/2020: China’s advancing digital economic strategy shows U.S. is far behind
As the world continues to combat the humanitarian and financial effects of the COVID-19 pandemic, China’s strategy to lead the digitization of the global economy is about to take two significant leaps forward. The country’s national blockchain system — the Blockchain Service Network (BSN) — is scheduled to launch next week and is designed to serve as the ‘internet of blockchains’ according to the BSN Development Association. In addition, one of China’s state-owned banks released the first real demonstration of the infrastructure behind the country’s CBDC with an interface that conveys how users will be able to use the currency, including receiving and sending payments.
These two tangible steps reinforce Beijing’s intent to seize first-mover advantage in establishing and controlling the infrastructure for the future global digital economy. This includes a backbone network for future blockchains as well as the monetary and payment systems to host and process economic transactions.
· The first concrete manifestations of the digital yuan demonstrate a sophisticated framework involving the country’s central bank (PBOC), four state-owned banks, an already-built digital wallet app, and three of the country’s telecom giants including Alipay. The widespread global use of a Chinese CBDC could threaten the use of the US Dollar as the world’s reserve currency.
· The BSN represents China’s clear attempt to put in place a global infrastructure network that will be controlled by Beijing and will allow it to extend its technological and financial influence worldwide. Applications already being discussed for development on the network include smart-city initiatives, identity registration, and data storage — uses that clearly have broader implications when placed in the context of Chinese government influence and control.
Although China may have accelerated the development of its BSN and CBDC to stay out in front of Libra’s potential launch, it has benefited from the year-long regulatory backlash against Libra, the short-sightedness of U.S. economic and political leaders in refusing to pursue a digital dollar, and — more recently — Beijing’s ability to advance its plans while the rest of the world remains on their heels because of the pandemic.
While we are encouraged by the recent recognition among U.S. policymakers of the potential benefits of a national digital currency (there was another Congressional proposal introduced last week to establish Fed-controlled digital dollar wallets), it’s clear that the U.S. is woefully behind China in terms of putting in place the policies, technology, and geopolitical leadership to remain the backbone of the global economic system as it becomes increasingly digitized. With Libra’s revamped model (as a series of stablecoins tied to different currencies, rather than a single coin backed by a basket of foreign currencies) already drawing criticism from U.S. politicians — not to mention continued concerns about stablecoins from international bodies like the FSB — we assess it is unlikely there will be a significant competitor to China’s digital currency in the near term, which clearly has broad implications for the global future macroeconomic and political landscape.
We at BitOoda will continue to monitor and analyze the details and implications of China’s digital currency and blockchain initiatives, and we stand ready to develop, structure, and execute strategies to help our clients effectively manage risks and seize opportunities in this fast-moving environment.