COMMUNIST CHINESE THREAT China's Crypto Is All About Tracing — and Power Beijing will come out of the coronavirus crisis with a big first-mover advantage in official digital currency. By Andy Mukherjee - May 24, 2020, The coronavirus has disrupted the world in very large ways. While that battle has been waged, however, another event has almost been missed: the birth of a new kind of fiat currency, which could forever reshape the relationship between money, economic power and geopolitical clout. An official Chinese digital yuan, more than five years in the making, is now in pilot runs to slowly start replacing the physical legal tender. If the experiment succeeds, this new cash, valued the same as the familiar banknotes bearing Mao Zedong’s image, will become the world’s first sovereign token to reside exclusively in the ether. The trials are taking place just as the blame game around the coronavirus deepens mistrust between the U.S. and China. With President Donald Trump warning that Washington would respond if Beijing intervenes against protests and democratic movements in Hong Kong, chances of a detente from last year’s trade war are fading. Outside the People’s Republic, the big question is if the digital yuan is a challenger to the dollar. Within China, though, there’s a more mundane explanation for why Beijing wants to turn banknotes in circulation into virtual tokens. Chinese consumers have bypassed both computers and credit cards to embrace mobile payment apps, which have gone on to spawn large money-market funds investing in high-yielding wealth-management products. This has led to the accumulation of risks in opaque shadow banking. Bringing them out in the open requires a leg up for traditional lenders in payments, an area where financial technology has left them far behind. The digital yuan, which will be pushed out to consumers via banks, seeks to restore this missing balance; it will allow authorities to “regulate an overstretched debt market more effectively,” says DBS Group Holdings Ltd. economist Nathan Chow. Mobile Has Won Over Paper China's cash intensity measured as a ratio of currency in circulation to broad money has gone below 5% as people prefer to use payment apps on phones Source: Bloomberg *The annual spikes represent cash demand during Lunar New Year celebrations Still, there’s also a power play. It isn’t a coincidence that China’s project picked up speed last year as Facebook Inc. announced Libra. The proposed stablecoin promised to hold its value against a basket of major official currencies rather than gyrating wildly like Bitcoin. When it looked like regulators in the U.S. and elsewhere would nix this synthetic global cryptocurrency, the Libra Association curbed the scope of its undertaking. But the idea of “a regulated global network for cost-effective retail payments,” as described by Singapore state investor Temasek Holdings Pte, a new member of Libra’s Geneva-based governing body, remains alive. For Beijing to shake the dollar’s hegemony, it has to pre-empt Silicon Valley from taking the pole position. Hence the hurry for China’s test runs. According to media reports, half the May transport subsidy for Suzhou municipal employees will be in the form of digital currency electronic payment, or DCEP, as it’s being called in the absence of a catchier moniker. The pilot plan in Xiong’an, a satellite city of Beijing, includes coffee shops, fast food, retailers, theaters and bookstores, Goldman Sachs Group Inc. has noted. The other trials are reserved for Chengdu and Shenzhen. read on... https://www.bloomberg.com/opinion/articles/2020-05-24/china-s-yuan-will-exit-covid-19-with-a-big-digital-currency-lead