The Banking Executive Magazine - January 2022 Issue

China Launches its Digital nancial and fiscal support. WORLD IMPACT AND REACTION The Wall Street Journal sees that Chi- nese government is minting its cash digitally, in a re-imagination of money that could shake a pillar of American power. China is turning legal tender itself into computer code. China’s version of the digital currency is controlled and issued by its central bank. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate bitcoin’s major draws of anonymity for the user. Beijing is also positioning the digital yuan for international use and de- signing it to lead the global financial system, where the United States U.S. dollar has been king since World War II. China is embracing digitiza- tion in many forms, including money, in a bid to gain more central- ized control while getting a head start on technologies of the future. Digitization of the yuan can provide options for people in poor countries to transfer money internationally. This may threaten the dollar over the long term according to International Monetary Fund IMF experts. The U.S., as the issuer of dollars used in major cross-border currency movements gives Washington the ability to freeze individuals and insti- tutions out of the global financial sys- tem by barring banks from doing transactions with them, a practice known as dollar weaponization. Ex- amples are American sanctions on North Korea and Iran for nuclear pro- grams. The digital yuan may allow ex- change of money without U.S. knowledge. Exchanges do not need to use SWIFT, the messaging network that is used in money transfers be- tween commercial banks and that can be monitored by the U.S. gov- ernment. The chance to weaken the power of American sanctions is central to Bei- jing’s marketing of the digital yuan and to its efforts to internationalize the yuan more generally. China cen- tral bank officials foresee that the dig- ital yuan will protect China’s monetary sovereignty and offsetting global use of the dollar. Biden administration sees the digital yuan as more threatening than the war with China. The Chinese have created a problem for United States by taking away their sanctions lever- age. Beijing has joined an initiative to de- velop protocols for the cross-border use of digital currencies, working with the Bank for International Set- tlements and the central banks of Hong Kong, Thailand and the United Arab Emirates. Digital yuan will be rollout during Beijing Winter Olympics. The Games will feature ATM machines ISSUE 157 JANUARY 2022 the BANKING EXECUTIVE 13