News & Analysis

Digital Yuan pre-issue boom gets Britcoin excitement going

Andrew Saks, Monday, 26 April 2021

The Bank of England has been incredibly excited about the prospect of launching its own digital Pound, with enthusiasm having gained momentum last week.

It is hard to imagine that government departments within important nations with established financial markets economies would be influenced by the follies of social media, however Holland's ING Bank's opinion is that discussions of national digital currencies began with the emergence of bitcoin but were "mostly academic" until Facebook's decision to launch its own digital currency in 2019.

Seriously? Facebook influencing central bank policy within the world's most important financial centers of London and Shanghai?

Yes.. Shanghai.

How is Shanghai even relevant, when the Yuan is a strictly controlled currency issued by a communist government? The answer is that in this context, it is not a fringe currency that requires settlement with Western clearing houses for vast international trade, it is a pioneer of the cashless future of sovereign currencies.

It is easy to dismiss the sudden interest in digital versions of British and European currency as Facebook-led attempts at being ultra-modern, but there is far more to it than just appealing to the iPad generation.

The reality is that China's ability to control capital inflows and outflows by being able to switch e-wallets on and off is central to its policy of controlling its state-owned resources and keeping them within China's borders.

It is of course entirely possible to travel outside China and then exchange physical Yuan for US Dollars, British Pounds or Euros, but it is impossible to exchange the digital version, just as it would be impossible to settle corporate FX transactions between Chinese suppliers and Western commercial enterprises in digital Yuan without government monitoring.

The connection between China's unprecedented efforts to launch a digital version of its sovereign currency and the European and British central banks following suit is interesting.

Today in China, six of the largest state-owned banks are quietly promoting digital yuan ahead of a May 5 shopping festival, carrying out a political mandate to provide consumers with a payment alternative to Alipay and WeChat Pay.

The official line of the the People’s Bank of China (PBoC) is that the digital Yuan, known as e-CNY won’t compete with AliPay or WeChat Pay, and serves only as a “backup” or “redundancy", an interesting move which follows Ant Group, owned by Jack Ma, being prevented from listing on an international stock exchange in November 2020, ensuring the government a data and currency monopoly.

This represents a pre-issue boom, and just as this festival takes place, smiles are on the faces of the Bank of England's senior figures who wish to follow suit.

On Friday last week, enthusiasm among British officials was at an all-time high, as the Bank of England and Treasury announced they would launch a taskforce to investigate the potential development of a digital Pound.

As the possibility of government being able to simply switch people and companies on and off at will by moving away from physical cash made of paper, perhaps market opportunities will occur as countries with major currencies in digital form - which would be most of Europe and the UK if the digital Euro championed by Christine Lagarde and the newly proposed digital Pound which has been dubbed "Britcoin" go into circulation.

It's been just over one year since Andrew Bailey assumed his position as Governor of the Bank of England, following his four-year tenure as CEO of the Financial Conduct Authority (FCA), Britain's financial markets regulator.

Rather interestingly, the Bank of England has rushed forward its interest in developing a digital Pound, yet just two months ago Mr Bailey nailed his colors to the mast publicly by denouncing peer-to-peer digital currency, especially Bitcoin.

He said that Bitcoin and other existing crypto currencies will not last as technology develops.

Speaking on a panel at the World Economic Forum (WEF)'s online Davos Agenda, Mr Bailey said that despite this ideology, digital innovation in payments is here to stay.

He stated that cryptocurrencies in their current state were not likely to be the final settling point, as businesses, consumers and regulators would look for digital currencies which are stable, safe and well-designed before fully shifting away from traditional currencies like the pound and dollar, a rather poignant statement considering that there are an increasing number of people who view the WEF and its various agendas to be at the root of undemocratic economic reset ideology.

This line of thinking clearly follows Mr Bailey's advocating a digital Pound, but railing against peer-to-peer digital assets, an almost identical ideology to that of the Chinese government.

Will there be a digital US Dollar, or is total government control of circulation unconstitutional?

Herein lies lots of speculation, however what can be gleaned is that if Europe and Britain align themselves with China's currency issuing methodology and the United States does not, a lot of commercial trade settlement between Europe, Britain and the US could be switched to US dollars rather than easily controlled digital currencies and a clear settlement line between China, Europe and Britain, whilst Europe and Britain would be able to conduct their easily reported settlements with China.

Potential result? Investment in US dollar-backed securities and a switch to Dollars, and volatility between the three major pairs for the first time in many years.

The question is, would the world go the way of aligning itself with the economic powerhouse of China and head for the digital version of European and British currency, or would the majority of free market investors stick to the good old fashioned analog currency markets in North America?

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