China has issued a digital Yuan and it's got governments around the world scared and in catch-up mode. So what's the big deal? The world is moving at breakneck pace to a digital based currency system. Cash is being phased out. Consumers around the world are paying increasingly with debit and credit cards. Cash is being used less and less and this trend has only accellerated since the advent of COVID. It only makes sense in a predominantly digital commerce world that this would be accompanied by government issued digital currencies.
When Facebook announced its intentions to launch Libra, the world took notice and action. When a public company with 2 billion users starts issuing its own currency the financial elite start to panic. Just imagine how much power would shift to Facebook. It could become one of the largest financial payment networks in the world overnight. As if it did not have enough power and influence right now, a move to digital banking would tip the balance of power even further to the digital elite. Mark Zuckerberg's argument was simple. "If we do not do it, someone else will" and that is exactly what is happening with China announcing the launch of its digital currency. However, the implications of China announcing a digital currency are just as far reaching as Facebook's announcement.
From a Geo political and economic standpoint, China's launch into the digital world is a significant threat to the dollars global dominance. A digital currency means the ability to bypass US oversight allowing countries that the US is looking to penalize with sanctions, for example, to bypass international payment networks such as SWIFT (which the US monitors closely) and exchange funds anonymously. China's game plan to weaken US dominance in the world is not exactly a secret. As we have written in previous articles, there is a global economic fight for dominance going on between China, US and the EU (less so). One of the last significant bastions of US power in the world is the dominance of the US dollar as the global reserve currency. Almost 80% of all global trade is done in dollars. China is going to keep doing everything it can to disrupt the last bastion of US power.
Global inter-dependence through globalized supply chains has come into questions post COVID as countries looking to secure critical economic resources (healthcare is now also in this category) during times of emergency realize that this is much harder to do with globalized supply chains, where national interests do not align. The Hauwei saga is another example of china looking to integrate itself into the technology infrastructure of the UK and Europe. It goes without syaing that when a state supported company is looking to build out another countries technology infrastructure on a national scale that there should be serious security concerns. Europe and the UK were clearly not concerned enough until - no doubt - highly classified information was made available to suggest how easily a nations entire security system could be put at risk. The recent security breach or technology weakness that was exploited for years at Solar Winds put thousands of large corporations around the world at risk unknowingly (for years) and is as good as example as any, to know what the best tech geniuses in the world are capable of.
The fight for global economic dominance is not going to subside. At this juncture governments are having to re-chose sides and walk a very fine line based on economic inter-dependence, financial independence and very serious national security concerns.
The launch of a digital yuan currency marks the official shift - in our pinion - where we will see governments accellerating their efforts to issue their own digital currency. We will not be surprised to see digital currencies as common place within the US and Europe in the next 5 years. It is worth noting that while China will use its digital currency to increase its state surveillance, western countries will face an onslaught of privacy questions and restrictions. That being said, if you watched the documentary on Edward Snowden there is very little the state cant do to monitor anything if they so choose. Privacy is a luxury in the 21st century and will be dispensed with if it is in the national economic or security interest. It is for this very reason as well as the prolific tendecy for governments to print more paper and devalue their currency whenever needed which is more often than not, that Bitcoin has captured the imagination of so many individuals and now institutions and corporations.
The wave of new instititional and corporate money coming into Bitcoin is still in its infancy. However, Bitcoin has already exceeded $1Trillion (as an asset class) in the last couple of months. If this trend continues, one can reasonably expect Bitcoin to grow in value over time as supply exceeds demand. Gold is often used as a comparable asset class to Bitcoin which is often referred to as digital gold. However unoike Gold, bitcoin has a finite supply, is more liquid and easily stored and transportable.
It is also worth noting that PayPal's entance into digital currency (along with Venmo) has made buying bitcoin and other digital currencies a two minute exercize for its 300 million user base. It also just recently announced that it's users will be able to buy goods and services at its 30 million participating vendors with digital currency. VISA and Mastercard are announcing their own plans as well. We should also note that Square is another big player in the digital space.
The trend is clear. Digital currencies are the future and that trend will offer plenty of investment opportunities.
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