As digital assets and cryptocurrencies gain momentum and extensive use, many counties are in intense competition to come to terms with digital currencies. So far, China has been leading this contest. Many experts consider China’s plan for a central bank digital currency (CBDC) as a highly progressive and civic step that other counties ought to follow. The European Central Bank (ECB) has already announced its plans to launch a pilot program within two years. Especially, the United States is worried that the digital yuan will pose a threat to the dollar’s dominance.
Sinophobia could be defined as anti-Chinese sentiment and a kind of antagonism against China and Chinese culture. The pandemic has recently triggered a new wave of Sinophobia. Historians state that American Sinophobia dates back to the 1880s when the Chinese Exclusion Act was passed. This law banned Chinese immigrants from entering the U.S. at the time. Former U.S. President Donald Trump’s constant accusations against China for COVID-19 worsened the situation in the U.S.
The concept of Sinophobia has been more related to trade wars, media, proxy wars and especially economics nowadays. The worsening political, economic and social relationship between the U.S. and China has been at the forefront of the media. A recently published report from the Pew Research Center reveals that 73% of Americans have an unfavorable view of China. This ratio was 47% in 2018. This, therefore, means that Sinophobia exists on both governmental and public levels. China’s digital yuan seems to be the most prominent reason behind Sinophobia currently. So, is the digital asset a threat to the West or a progressive move in the transformation of traditional fiat money?
While the People’s Bank of China (PBoC) has stated that the alleged objective of minting a digital yuan is to lessen transaction costs and bring efficiency into payments, the West claims that the real intent of introducing a digital yuan is to intensify state authority of the payments system and to monitor transactions and even personal behavior. Chinese yuan (e-CNY), which is known as the digital currency and electronic payment (DCEP) system, has been under scrutiny for a while. Pilot programs have been set up in big cities and, in June, a lottery was held to pay out 40 million yuan ($6.2 million) in digital cash. Residents of the city joined the lottery by using two banking apps for the opportunity to win one of the 200,000 digital yuan “red packets,” each worth about $31, which could be utilized for shopping at certain business points.
Whereas the Chinese government is proud that it is moving toward a cashless society, some economists think otherwise. Cornell economist Eswar Prasad’s new book titled “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance” warns about the role of central bank digital currencies in non-democratic societies. The book informs that, “In authoritarian societies, central bank money in digital form could become an additional instrument of government control over citizens rather than just a convenient, safe and stable medium of exchange.”
The U.S. also is concerned about digital colonialism and it has some solid reasons. Launched in 2015, the Digital Silk Road (DSR) is a part of China’s Belt and Road Initiative (BRI). The project urges Chinese companies to spread the construction of digital infrastructure and integrate communications technology (ICT) markets in countries that take part in the BRI. The U.S. regards this project as a sinister way to force the adoption of the digital yuan, thus increasing the Chinese control in the Western financial system. The U.S. government has recently asked the EU counties to abandon the project. The outstanding Chinese company Huawei is also under pressure. In spite of the increased regulatory scrutiny from the EU and U.S., Huawei signed 90 agreements in the first two months of the year and almost 50 of these were signed with European companies.
Alex Gladstein, chief strategy officer at the Human Rights Foundation (HRF), has revealed the dangers of the CBDC to financial freedom and privacy, especially in authoritarian regimes like China. Digital yuan is designed for domestic use, not cross-border transactions, at least initially. The Western axis claim that the dollar has this unique status as a safe-haven currency as it is supported by the U.S. institutions that preserve fundamental freedoms and human rights. Jerome Powell, the chair of the Federal Reserve Board (FRB), has recently said that a digital dollar would be useful for the world economy.
It is clear that the digital yuan will pose a risk to dollar dominance in the long term. As China and Eurasian countries get more politically and financially powerful, China will do its best to expand its digital yuan in Africa, the Middle East, Asia and elsewhere. Some experts believe that the digital yuan is a perfect achievement that indicates the power and superiority of China in financial technology while the U.S. government considers the digital yuan as a secret weapon. One thing we are sure of is that China has been rehearsing to overtake the U.S.
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