China is now vigorously testing a digital yuan and threatens to have it ready for prime time for the 2022 Winter Olympics. This seems, to me anyway, important. It will be a real, workaday yuan, not a speculative cryptocurrency like Bitcoin. It will use a digital wallet via a cellphone app, and will not require an internet connection. Beyond this, I know about it only what I read, which may be wrong. To avoid endless qualification, I will write the following as if it were fact, but really I mean it more as an extended question. Any correction, amplification, or thought will be welcome.
I assume, perhaps incorrectly, that all currencies of any worth will eventually become digital. Many countries, the EU, and Google are now pondering the idea. There are serious objections to digital money, which we will come to shortly but, if all countries have them, the question will become which is least bad.
I also assume, tentatively, that Beijing will want to make the dijjywan as nearly universal as possible. The Chinese will accept it with little concern since they are accustomed to making payments with mobile apps. To have people adopt it in countries still mired in the Paper Age, the dijjywan will have to be attractive. To whom will digital currency appeal, and why? What will be the appeal? Some ideas:
It will not require a bank account, making it attractive to people who have a cell phone but not a bank account. While these folk do not on average have a lot of money, their use of dijjywan will be a step toward universalizing the currency. And of course, many who do have bank accounts may want another repository for money. It will require only the app and a QR code.
Transactions will be instantaneous and free of bureaucracy, such as the filling of forms and handling of SWIFT codes. (I suspect that Washington has thought of this latter point.) This feature will appeal to everybody.
As with paper currency, there will be no transaction fees. This will make it popular with merchants, though not with Visa and Mastercard. These charge a percentage of the purchase price of merchandise. A wan-wallet with no rake-off would have interesting consequences for the credit-card companies, such as bankrupting them. The threat to such companies as Western Union would be, well, gratifying. They would quickly become extinct.
Since the dijjywallet is a debit device, not offering credit, it will cut down on the impulse buying on which Visa and Mastercard rely to manufacture debt slaves. Goodbye twenty-percent interest rates on unpaid balances.
Armed robbery and theft will become almost impossible. I could put a pistol to your head and demand your money, but you would have to transfer it to my own phone. This would create a record of amount, date, time, GPS (or Beidou) position, as well as the identity of both of us. This would reduce the enthusiasm of most armed robbers. You would of course report the robbery, and your money could simply be pulled from my phone and returned to yours. In America’s dangerous cities, and Brazilian favelas, this might be appealing.
In countries vulgarly but accurately referred to by Mr. Trump, the currency can be, and often is, inflated into the 1923 Deutschemark by exuberance with the printing press. By adopting the Chinese dijjymoney as a national currency (or somebody else’s when available) said country would have a stable, grownup currency. This might actually appeal to some Third World countries. China might make such adoption a condition of loans.
An enormous appeal of dijjywan is that transactions are completely independent of and opaque to the American government. Even it its early form as a retail instrument, it will appeal to governments such as that of Cuba and Iran, which might like an influx of dijjywan into their tourist and retail industries. People who want to send remittances to countries being sanctioned, which does not yet include all countries but Washington is working on it, could do so unfettered.
It will appeal to people in badly governed countries, for example Zimbabwe, because it is portable. For example, the owner of a store there cannot easily today travel because Zimbabwean currency is worthless outside of Zimbabwe. But the dijjywan will be accepted around the world.
Washington will go into gibbering gollywobbles at the idea of dijjywan being used in the US, and outlaw it. So might other countries on, among other grounds, of not collecting sales taxes. However, Beijing could easily charge such taxes and deliver the proceeds to the local government.
The obvious, and entirely justified, objection to the dijjywan is that it would be transparent to, and controllable by, the People’s Bank of China. The possibility for social control is immense since, if you should be a bad boy, the PBOC could disappear your money. Note, though, that this will be true of all dijjymoney from whatever country. If—when—all major currencies become digital, you will have to decide which is least unreliable. And for most people, digital tracking of their money would make no difference. When was the last time you paid for anything illegal or that would upset Washington?
As a wild thought, might some international entity want to establish a planetary digital currency? We live in wild times.
Along with the downsides, there would be advantages. For example, the drug cartels would be very, very, very, very unhappy. Carlos lands daringly by dark of night at a clandestine airstrip in Florida with a ton of cocaine. Willy Bill the dealer steps from the jungle and pays Carlos for flying, which creates a record of time, place, amount, identity of both, and trips an alarm at FinCin in Washington. In the drug racket, this sort of thing is suboptimal. Money laundering would become the Achilles heel of the drug racket.
At this point the dijjywan sounds retail, not suited to purchases of oil. Could it be scaled up for larger transactions? I don’t know, being blankly ignorant of high finance but, if it could…Good Heavens, it would evade American sanctions. Oh no! I doubt, though, that Beijing has thought of this. Probably Washington hasn’t either.
Them is some thoughts. I don’t know whether they are good thoughts.
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