China vs. USA: the lethal weapon

The Chinese are convinced that the United States are a declining power, and they are basing – as a consequence – all their actions on this prediction. This is why China now feels that it is strong enough to take on a hitherto impregnable and unchallenged stronghold, that being America’s currency and the exorbitant privilege it enjoys.

However, this strategy that seeks to eat away at the dollar in order to challenge the USA’s dominance does not involve a full-frontal attack. Its spearhead is in fact the launch of the digital yuan and its active promotion, and its international reach that will allow it, among other things, to circumvent the threat of drastic sanctions that the US regularly makes us of. In America, this menace from China is being taken very seriously because the loss of this weapon of mass dissuasion that is sanctions would for them demonstrate a considerable weakness, and an even bigger risk than armed conflict.

With its digital yuan, China is offering future users across the globe – individuals, institutions, but also governments – a turnkey model, a blueprint, for future digital currencies to replicate. By securing and popularising its own model of digital currency, like it has already done with 5G and facial recognition, China would be able to brush off – thanks to technology – the dollar’s domination, because America’s financial infrastructures are clearly falling behind the trend of modernisation. Like China’s vaccine policy whose main aim was clearly to win over the hearts and minds of developing nations and their citizens, this digital yuan will also target one billion seven hundred million poor people throughout the world who do not have a bank account. It’s not hard to imagine the prestige and power that this would bring to China when the left-behind, migrant workers and refugees start using the digital yuan to make online purchases and cash transfers.

It’s also not hard to imagine the share of the market that the digital yuan would carve out for itself, if it were to be effective, in a world where international bank transfers take several days and always require complex procedures. We can also imagine America’s concern if it were to be faced with exchanges that – short-circuiting the SWIFT system that it controls – would not only evade it totally, but would also cause users from all across the globe to make a decisive switch to mother China. Without even having a bank account, Chinese companies – that are becoming more and more important on the world stage – would therefore be making transactions in digital yuan, outside of all traditional banking intermediation, actively contributing to the dethroning of the dollar bill, that today makes up more than 85% of all the world’s exchanges.

It is a real macroeconomic revolution that is rearing its head, because this system will allow any government to set an expiry date for chosen digital currency packages, in order to regulate consumption. The repercussions in terms of growth, controlling inflation, and combatting recessions are potentially huge, because it will then be possible to recover an economy and give jobs back to the unemployed by regulating the flow of spending and the circulation of money within the economy. The saver and the investor will also be forced to spend certain sums of money today that will – tomorrow – no longer be usable.

Beyond the implications of the digital yuan and China’s intentions, the fact is that this country is the first in the world to introduce an era where the nature of money and how it is used will be forced to radically change.