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Libra Vs China. Round 1.

The Fight for Digital Currency Supremacy

You may not have noticed but a giant digital global boxing fight has just begun and we’re about to go 14 rounds. There will be blood.

In the Red Corner, we have the whole of China, in the Blue corner we have plucky underdog Facebook.

The Americans think it’s going to end like this …

Whereas it’s more than probably going to end like this …

Let me explain — The prize for this boxing match is not ‘free’ trade or winning the monopoly for global 5G networks ; those straw men are a political device and an overhyped side show — the prize is nothing less than Global Monetary Dominance — where the winner takes all on the global financial stage and the loser falls into irrelevance.

Remember the Portuguese Reais Currency during the 16th Century? Me neither — and yet it was the global superpower of the Renaissance.

Nothing, it seems is fixed. The battle for money supremacy never stops.

Donald Trump — it’s safe to say, is not a fan of crypto. It’s also safe to say he is a big fan of dollars. Not just his own dollars (that’s a given), but The Dollar in general.

It’s amazing but the Americans seem to believe they will be Top Dog for ever.

But Trump seems to have forgotten that Tigers eat Dogs for breakfast.

After cowrie shells, gold, and paper money it was inevitable that the money fight should go digital.

Ecash, hashcash, bitgold, Paypal all had a good go. Bitcoin the honey badger continues to thrive — but will a relative newcomer to the money scene emerge as the global winner?

Whilst the relative Bantam Weights of crypto are dancing around the ring — it may not have gone un-noticed to the casual observer that two major heavyweights have just arrived.

American poet, Robert Frost nailed it when he wrote;

Accounts differ as to when not if China will overtake the US GDP. If China and Corporate America are going to fight a borderless digital war — it’s going to be a big ding dong.

Lets not forget too, that China is the second-largest (to Japan) buyer of US Treasury Bonds; $1.15 Trillion and counting. And while China is only currently 15 % of global GDP (The EU is 27% The US at 24% ) it’s growth is nothing short of incredible at 6.5% — considering its compound.

Prefixing old things with the word new is not new; New Model Army, New World Order, New Deal and now we have New Dollar. Only it’s not New Dollar — it has a new name; The Yuan.

Or more specifically the Digital Yuan (like the Inter-Company Digital Hong Kong Dollar) aka as the Chinese Bank Digital Currency CBDC aka as Digital Currency Electronic Payment DCEP.

I think you’ll agree — Catchy titles all.

Talking of snappy monikers, North American Mark Carney — Governor of the Bank of England, has signalled that the battle for a new Single Hegemonic Currency (SHC) is on.

In other words, the Dollar is on the ropes.

Before we get to the Knock Out blows we need a little history — a little context. You’ll remember from your school history that in ancient times — the Global power was whoever controlled the high seas.

In simple terms seas mean trade; trade means financial capital; financial capital leads to production capital; production capital leads to bigger boats which leads to longer sea journeys and so on.

The Phoenicians mastered this first, then the Greeks (remember the siege of Troy?) the Romans (remember Asterix?) followed by the Spanish, Portuguese and then the Dutch. All sea powers in their day.

More recently the British Empire with it’s British Sea Power was THE global center for trade — a direct result of Nelson controlling not just the Med (The Battle of the Nile), but the Baltic (the Battle of Copenhagen) and the Atlantic too (the Battle of Trafalgar).

Sea power is still important given that 90% of global trade is by sea. Let that fact sink in for a moment; 90% of the stuff that surrounds you was once on a container ship.

The trade goes by boat but money no longer travels by treasure chest or by sea. It travels at high frequency through copper wires and radio waves, Bluetooth, ether cable and wifi.

This war is digital.

With a traditional war you knew whose side you were on; my religion vs your religion or my country vs your country. But this time it’s not state vs state; it’s The People vs The Plc.

Or more specifically, The People’s Bank of China vs The US Joint Stock Company. In a literary sense, it’s nothing less than 1984 vs Brave New World.

Nation-states and private companies have become enmeshed before; notably, the Dutch East Indies (VOC) and British East Indies companies who traded and looted around the world with impunity, and with their own armies too...

In a sense, Mark Zuckerberg is just the latest incarnation of a long line of distinguished privateers.

Remember a privateer in the 16th century was a private person or warship endorsed by its own government to attack foreign shipping. Why risk the wrath of your faithful electorate when a corporate mercenary will step in at half the price?

New Privateer Facebook is dipping a toe in the crypto pool. There may be signs for no ducking, no bombing, no smoking, no petting, and no diving...

but China has just jumped off the 10-meter diving board — fully clothed. They didn’t even pretend to get changed.

(Meanwhile, Carney can’t find his budgie smugglers in the changing rooms).

To say China has caught everyone by surprise is somewhat of an understatement. There is a Chinese proverb that goes;

For years China has been hiding it’s crypto light and been outwardly fiercely anti-crypto; banning and unwinding Initial Coin Offerings in 2017, banning mining and banning Bitcoin in general.

And then, of course, there is monetary control.

It’s all good and well to have digital crypto but who sets interest rates? Who tries to control inflation? Who collects taxes? Who is the bank of last resort?

You simply can’t go crying to your mum when you lose your private keys.

Crypto is often called the Wild West but here we have something different emerging — a digital Mild East.

While China has struggled to control the use of Tether and Bitcoin — Changchun Mu, Director of the China Research Institute in Digital Currency is clear that China needs to retain control of its monetary sovereignty and capital outflows.

But how can you control a borderless digital currency?

In the frenzied days of 2017 many cryptocurrencies quickly became stores of value and speculative vehicles, instead of the much-promised utility tokens and systems for peer to peer cash transfers.

So what’s to be done to prevent the same thing happening with DCEP or Libra?

Enter the era of Stable Coins or SCSC’s (So Called Stable Coins). Just as pre 1971 the Dollar was pegged to Gold, so Libra will be pegged to a basket of currencies; Dollar, Euro, Yen, GBP and Singapore Dollar.

There’s a currency missing from the Libra basket — the Yuan.

By comparison — Over in the Red Corner, the DCEP will be pegged not to a basket but to just one currency; the Chinese Renminbi.

The handy thing of course about being a centralized blockchain is that if you ever do change your mind about pegging — you can simply vote and change.

In 1944 the Bretton Woods Agreement involved the US Dollar pegging to Gold and the rest of the world pegging to the US Dollar. But in 1973 they changed their minds. The agreement collapsed and the Gold was Free. And paper money became

…well, just paper.

It’s interesting to reflect here that the anti-crypto lobby persistently exclaims in horror that crypto …

While all the while trading with ‘just’ bits of paper… Remember it’s just a Promissory Note! Not dissimilar from an IOU on a post-it...

So if history repeats itself (and it does) — its seems likely that any gold peg or basket of currency peg will only be temporary- to bootstrap the system...

If Canada was pro-crypto, America and Europe were cryptos agnostic then China seemed very anti-crypto.

So it came as something of a surprise in August when the Peoples Bank of China (PBoC) casually announced they were launching a digital currency…and they have 72 patents. Seventy-Two.

Count’em. 72.

That’s some Nourishing in the Dark. The lights are now very much on. The USA is not shadow boxing anymore it has a Grendel and Grendel’s Mother to fight.

But it turns out that the boxing ring is not flat. There are two steeple-chase like hurdles to mainstream crypto adoption;

China has neatly sidestepped regulation (the bank makes the rules) and they have immediate distribution to 2 billion customers aka the people.

Yes, that’s right — they just cleared the two hurdles like they don’t exist.

Facebook, on the other hand, looks like being stuck in the legal AML/KYC/ Privacy swamp for years and years and possibly decades.

It’s not clear whether Libra will ever clear the regulatory hurdles placed before it...

They may choose to sidestep the hurdle (being registered in Switzerland) or even try to go under it. One thing is for sure -it’s going to be a helluva challenge.

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