BitOoda Geopolitical Analysis, 4/23/2020: Launch of the “Digital Belt and Road”

In 2013, Chinese President Xi Jinping launched the One Belt, One Road initiative, subsequently renaming it the Belt and Road Initiative (BRI). The project consisted of an aggressive series of development and investment projects in more than 70 countries stretching across Asia, Europe, and Africa. Many view this initiative — with a target completion date of 2049 — as a strategic plan to expand Beijing’s influence in global affairs and redevelop the global economy around a China-centered trading and infrastructure network.

Following our analysis earlier this week of the pending launch of China’s national blockchain system and its CBDC, we noted with alarm this morning that three large American food outlets — McDonald’s, Starbucks, and Subway — have joined the initial tests for the new digital currency. The rapid incorporation of foreign firms into the CBDC pilot — expanding beyond the initial conglomerate of China’s central bank, state-owned banks, and Chinese telecom giants — in our view clearly indicates that this initiative is part of Beijing’s effort to revise the international order and export its authoritarian system around the world.

The fact that large U.S. firms are already plugging into China’s new digital financial system for day-to-day payments for goods and services is significant enough. However, even more consequential in terms of the longer-term geopolitical landscape is the fact that China is quickly putting in place the fundamental building blocks for a new foundational global economic system that will be driven and controlled by China, and which the rest of the world will be compelled to join on Beijing’s terms.

· China’s Blockchain Service Network (BSN) is intended to become the next iteration of the World Wide Web, and could give the Chinese government the ability to directly oversee efforts around the world to develop and govern smart cities, identity management, and data storage… among other applications and industries. If the BSN becomes the underpinning of the world’s next dominant technological backbone, the implications for privacy and sovereignty are immeasurable.

· In our view, the dollar’s position as the global reserve currency will be threatened and undermined by the rise of a dominant sovereign digital currency, particularly given Beijing’s pursuit since the late 2000’s of the internationalization of the Renminbi (RMB).

In summary, we see several issues emerging, which we think U.S. economic and political leaders should see as problematic. These are consistent with H.R. McMaster’s description of China’s three-pronged approach of co-option, coercion, and concealment — founded on economic aggression.

1. Beijing has accelerated the development of its digital financial infrastructure while the rest of the world remains mired in the impact of the COVID-19 outbreak.

2. Its progress in integrating the digital yuan into day-to-day global payment activity is shockingly fast, and is rapidly removing any window of opportunity for the U.S. or its allies to counter these moves with their own digital currency initiatives.

3. The American companies participating in the pilot of China’s new payment and digital currency system may not understand the longer-term significance of their participation in China’s digital payment network, or that they are being co-opted. In our view, Beijing likely sees these companies as “useful idiots” — to use the term attributed to Vladimir Lenin to describe those unknowingly propagandizing for a cause without comprehending the goals of the cause or its leaders.

We think it is imperative for U.S. leaders to take immediate steps to counter the rapid rise of a China-centric global digital economic infrastructure. This includes a national blockchain strategy to promote U.S. innovation and leadership in the broader blockchain space, and the immediate launch of a development program for a Digital Dollar to maintain the USD as the world’s foundational currency.

From BitOoda’s perspective, our entire team is continuing to closely monitor these developments. It is critical for forward-looking firms to be prepared and strategically positioned to integrate into the evolving payment and currency infrastructure, regulatory frameworks, and financial structures, regardless of where the future economic center of gravity exists. Please reach out to us to discuss the implications of China’s initiatives in the digital asset space for the strategies and opportunities we are developing for our clients.

A global digital asset financial technology & services platform providing next-gen risk management solutions, best-execution brokerage & expert market analysis.