China’s Digital Currency Changes the Game

Hey There Income Hunters,

 

In 1997, when I was trading at the United Bank of Switzerland (UBS) in the US, they offered me an opportunity to go to Britain with my family on an expatriate contract.

 

This is a deal where they pay for your living expenses, for the kids’ school, etc.

 

It was a sweet deal and I immediately said yes.

 

We lived in West London, a block away from Stamford Bridge, the home of the Chelsea Football Club.

 

We loved the city … However, not all Londoners loved us.

 

I’ll never forget our first week there … 

 

We were at a local pub having a few pints and chatting with a couple Brits when one asked my wife, “Who is one of the early founders of the Western world?” (Which, first of all, what kind of pub is this?)

 

She answered with Christopher Columbus, and I knew that was not going to go over well …

 

They were howling and replied with a somewhat nastier version of, “You bloody Americans know nothing about history.”

 

They may actually have had a point … especially in terms of our familiarity with the Far East.

 

I learned some great lessons while I was in London, and I was told more than once to be careful when it comes to China because they have been around the block a few times

 

They sure have — and their launch of the first digital currency controlled by a central bank is a massive game changer.

 

Here’s why …

 

Years of Experience

 

It’s pretty insane when you think about how long China has been in existence, more than 3,000 years, all told

 

And the country has completed three cycles of rising and falling in the past 1,700 years:

 

 

Now, I guess it’s appropriate the Chinese launch the first government-run digital currency since they invented the first paper currency a thousand years ago.

 

Back then, of course, it complimented their use of precious metal coins.

 

Bitcoin Paved the Way for the Digital Future of Money

 

Let’s address the differences between Bitcoin and China’s Digital Yuan (DY)…

 

        • Bitcoin is completely anonymous, which is a quality that will maintain Bitcoin’s relevance no matter how many central bank digital currencies are launched. DY is anonymous horizontally across all users. However, the People’s Bank of China (PBOC), which is China’s central bank, has total control of the DY data. Including: who’s paying, how much they’re paying, when they’re paying and where they’re paying. 

 

Oh.

 

        • Bitcoin and other cryptocurrencies offer a “safe haven” for investors looking to protect their wealth from paper currency devaluation. DY is an actual digital legal tender backed by China. It will not be pegged to any other currency. It can be increased or decreased just as paper yuan.
        •  
        • Bitcoin and other cryptocurrencies can be traded as another asset class within a trading portfolio. The PBOC eliminates speculation of DY by tightly controlling its value relative to paper yuan.

 

What impact does this have in terms of the Dollar’s Reserve Currency Role?

 

        • The US Dollar is used in 88% of foreign exchange transactions, while the Yuan is used in only 4%. So, DY will not be an immediate threat to overtake the dollar.
        • However, DY could lessen the impact of US sanctions. That is a major threat to the US. DY is a way to avoid cross-border currency movements through US banks. Over time this could remove America’s ability to block payments to sanctioned individuals or firms. Cross-border exchanges via DY would not have to go through SWIFT, the commercial bank messaging network that can be monitored by the US Government…

The Wall Street Journal had this to say, in part:

“(Mu Changchun, Director of the Digital Currency Research Institute of China’s central bank), repeatedly said the digital yuan is aimed at protecting China’s ‘monetary sovereignty,’ which includes offsetting global use of the dollar.

The Blockchain platform allows DY to move from A to B instantaneously, removing a way banks and financial apps profit off fees… 

The only necessary middleman is the central bank. Mr. Mu has said the digital yuan, because it is state-backed, will reduce risks to the financial system posed by China’s dominant payment platforms that are private companies…

The Belt and Road Initiative Could Increase the Use of DY Internationally

China’s global Belt and Road infrastructure initiative began in 2016 with plans for completion in 2047.

You talk about planning ahead. That is what having so much experience can do for a country.

Basically, China sends in the construction teams and puts infrastructure in place … They pay for all of it … Then export goods to all these nations.

Of course with payment in DY!

This will be the largest infrastructure product in history …

        • 68 Countries
        • 65% of the world’s population
        • 40% of Global GDP

Check this out … Gas & Oil pipelines, major Ports, railroad connections, freeways, etc …

Bring It Home

Today I wanted to introduce a bit of what is going on in China …

Look, it’s all part of the cycles of life. And as investors we should be aware of the macro developments like this

How our government reacts will be very interesting — and impactful.

Will the Biden administration be interested in finding a way forward together? Or will tensions ratchet up? Maybe Option Pit DC and Wall Street Insider Frank Gregory can offer his insight soon …

I will put together much more on the DY because it will obviously have a major impact on the markets.

Until then …

Live and Trade With Passion My Friends,

Griff

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