China Pushes The Battle For Cryptocurrency Hegemony To A New Stage
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At a meeting of the Chinese People's Political Consultative Conference in Beijing in May, members proposed a plan to create an East Asian digital currency based on an Asian currency basket. © Kyodo |
The global competition for
supreme power over cryptocurrencies has entered a new phase with China creating
an East Asia cryptocurrency program and social media company. US Facebook
adjusts the Libra money scheme to suit the positions of US regulators.
At a meeting of the Chinese
People's Political Consultative Conference (CPPCC) at the People's Great Hall
in Beijing from May 21, 10 members proposed a plan to create a digital currency
including Chinese Yuan, Japanese Yen, Korean Won and Hong Kong Dollars.
The proposal drew attention
when the 10 members included influential figures like Neil Shen, co-founder of
leading travel service provider China Ctrip. Shen is a billionaire with an
estimated fortune of 1.6 billion USD, he is also a leading venture capitalist
in China.
Members also include Henry
Tang, a Hong Kong politician and former civil servant, who holds the second
highest position of the special administrative region.
The CPPCC, consisting of
representatives from various fields, is held on the sidelines of the National
People's Congress, the national legislature, to discuss key issues. The
proposal at the CPPCC shows that serious discussions about the regional digital
currency program are being vigorously conducted in China.
As the People's Bank of
China has begun testing digital currencies in Shenzhen and four other
locations, the proposal is in line with a national project to bring sovereign
cryptocurrencies into use.
Because the 10 members of
the proposal say that it is "suitable" for the private sector to
proactively create regional digital currencies, the framework is expected to be
approved with government endorsement.
Although the value of the
planned regional cryptocurrency will be supported by a basket of four
currencies, the endorsement rate will be determined according to the economic
size of the economies involved, as suggested.
Therefore, the Yuan and Yen are
respectively accounting for over 60% and 20% of the regional cryptocurrency
value, respectively.
The proposal intends to set
up a cross-border payment network, in which businesses will conduct
transactions with each other via digital wallets. The network will help
expand international trade as it will reduce the risk of forex fluctuations and
allow smooth trading, supporters said.
The network will be
positioned to support a free trade agreement being negotiated by Japan, China
and South Korea. Therefore, this is also a new effort to create a trading
area that combines digital currencies and trade policies, analysts said.
China may also be trying to
maintain its relationship with Japan and South Korea at a time when the United
States is strained with China.
This proposal is clearly in
line with China's efforts to increase the use of international
currencies. With the United States repeatedly banning dollar-based
transactions as a punishment for rival nations, China is rushing to build an
independent payment network with the dollar, which is indispensable for
international business transactions.
China has been speeding up
research on the digital currency and viewing Libra cryptocurrency plans
announced by Facebook in June last year as rivals. For China, Libra, which
focuses on the dollar, does not seem like a digital dollar disguised as a
currency basket.
With the latest plans for
an East Asian digital currency, China will become a country that uses a basket
of currencies to accelerate the wider internationalization of currencies.
Meanwhile, the Libra
Association, a group organized by Facebook to manage digital currencies,
announced in April a new plan to provide native currencies supported by
individual currencies such as dollar and euro, put aside the original
plan.
This change reflects the concern of financial regulators, among many
others, that the use of different currencies in a country will undermine the
impact of monetary policy.
Ironically for China, the
new plan regarding the release of the Libra token is even closer to the digital
greenback.
Moreover, the revised Libra
plan indicates that if a central bank digital currency such as the digital
dollar is available, the Libra network can not only adjust itself to serve as a
bar platform, but also a single currency digital currency version.
Although U.S. monetary
authorities are considered cautious of cryptocurrencies, their actual stance
remains uncertain.
China's digital basket
currency plan proves that public-private partnerships are developing in that
country to design and promote a cross-border digital currency with the yuan at
its core.
In this context, the United
States and other countries are expected to work more closely between monetary
authorities and technology companies to help develop a digital currency across
borders or a partner like cross-border sterling.
In Japan, nine companies,
including megabanks and East Japan Railways, have begun research on the use of
private digital currencies and electronic payment systems with the
participation of agencies currency.
While this move is the
first step towards creating a digital yen at the initiative of the private
sector, Japan should avoid "Galapagosization" - evolutionary
isolation - leading to infrastructure development. Digital payments lack global
interoperability.
Japanese cell phones
developed special features to serve the domestic market but eventually lost
their global competitiveness, often considered a prime example of
Galapagosization, or Galapagos syndrome, a word, originating from the Galapagos
Islands, where biologist Charles Darwin observed different species on some of
the islands that existed after following a different evolutionary path.
As a matter of concern for
Japan, the yen has been excluded from the revised Libra plan as a candidate
currency for digital currencies, although this is one of five currencies
include the original Libra currency basket.
However, the Singapore dollar
is one of the currencies mentioned as a candidate, along with the dollar, the
euro and the pound.
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