As this technology fight gains traction, China is releasing a CBDC prior to the US, and this still doesn’t warrant worldwide dominance.

Two countries and two outlooks to future times – the technology cold war arrived, and the US are lagging, according to the founder of Ripple, Chris Larsen. China, he thinks, has a unique chance to take away from the US their financial superiority, with the final aim of taking the place of the USD with the digital yuan. This way, the values of transparency and openness may be lost.

People seem to share that sentiment. The cybersphere is at war around the fact of who will control digital financing, according to Perianne Boring, president of the Chamber of Digital Commerce. Though the war has tech like AI, big data, and the Internet of Things, the important thing here is distributed leverage, and this was highlighted by the president of China, too. Alex Tapscott, co-author of the book Blockchain Revolution, said that this country is on the verge of releasing a proprietary digital coin, and the US is far behind in this issue. These two approaches of two different central banking institutions are vastly different. The USA is adamant about protecting the USD as a domineering currency, and China meanwhile wants to expand its economic model around the globe and provide for more restrictions within its borders.

Are people going overboard with this?

Is this just a load of panic and nothing else? Because those who are concerned about the CBDC are not taking into account newer trends like de-globalization. Barclays found that the pandemic further rushed this process, which encompasses things like lessening of economic interdependencies, integrations among nations, etc. This may render the issue of who will dominate the global reserve with its currency as an unimportant one.

Lone Fønss Schrøder, chief financial officer of Concordium blockchain solution, doesn’t think that so-called ‘Western Values’ are endangered by the digital yuan. Since the inception of the coronavirus, enterprises and consumers turned to deliverables that are close to home. So, instead of a novel currency set to dominate the globe, we will probably see the expanding use of local currencies in a world that is less centralized.

As a non-executive director of the board at IKEA, Schrøder was part of an argument on the board. The topic was – is this global economic situation a new normal or a blip in the globalizing process?

She said that making and purchasing goods closer to our homes is a growingly popular phenomenon among younger people. They want to be supportive of local businesses, and they are not wasteful about energy.

According to Barclays’ study, the virus has exposed new risks to globalization, especially linked to the Chinese role in fast supply chains that are aimed for the delivery of intermediary goods for further production. Multinational firms will probably think twice about their supply chains and will be trading less with China, and will probably diversify centers for production. Moreover, getting some production back to domestic shores will probably happen, too.

Schrøder actually thinks the world is pretty much at pace, organization-wise. She continued with her allegiance to partnerships, especially as a person who resided in both parts of the world. She further added that the partisan gap in America is exactly what is not needed at this moment.

An overturning of the global order?

Not that long ago, the editorial board of the Financial Times stated that China’s fast advancements towards a central bank currency in a digital format could bring along a new world order. It will really pose a problem for the USD’s standing amongst currencies, and it can go around the rival western-run cross-border payment platforms, like SWIFT, which the US use to enforce sanctions.

In August, Beijing made an announcement about a test run of the digital yuan in 4 cities and with a test region of 400 million residents, which accounts for about 20 percent of the population. Also, Boston’s Fed said around that time that they would cooperate with MIT researchers over the next few years and try to develop a theoretical digital coin for central banks, comparing this venture to China’s – it’s tiny and lightyears behind it.

A digital yuan maybe won’t change a lot

But digitizing the yuan alone will not inherently guarantee worldwide financial supremacy. Digitalization does not fix the absence of free convertibility of the Chinese currency, Andrew Collier, Managing Director of Hong Kong-based financial analysis firm Orient Capital Research, said, further stating that China’s dollar competition is a long-term method. Although, China will still gain an edge over the US, thanks to the digitalization of its currency and other settlement systems.

Jason Brett, founder, and CEO of the Value Technology Foundation thinks China’s launch of CBDC prior to the US is not a warrant of global financial supremacy. If that was a sure thing, the Bahamas would conquer us with its Sand Dollar. Trade partners, military manufacturing, all of these are factors, too. A bigger problem is that China can use its new digital currency to spy on other nations when they transact.

In his opinion for The Hill, Larsen talked about how China’s policymakers are subsidizing big volumes of energy required for driving the country’s cryptocurrency mining sector, saying that China more or less is in control of Bitcoin. If the States lost control of the global financing system, such as cryptos, a number of horrible scenarios would come out of it. For example, a defense payout to an ally of the US may be blocked, and financial institutions in the country would see their payments limited if they don’t run in line with China’s policy aims.

TEch and risk management executive Jonathan Rosenoer talked about a similar issue, saying that China could stop transfers it doesn’t find suitable and seize digital instruments via the blocking of clients’ wallets.

A field of technology, among others

Others say that any financial harm that China may do to the US will be minimal. Tapscott believes that losing worldwide reserve status would dramatically reduce the financial market influence of the States and lessen its power internationally, but would not destroy it completely.

Steve Mushero, an American tech entrepreneur who established and serves as chief executive officer of ChinaNetCloud based in Shanghai, thinks that the Cold War between the US and China could be popping up in lots of areas — not just technology, but also trading, the economy, and human rights.

However, if one looks at the technology sector itself, China is doing great in digital payments and things like surveillance via artificial intelligence, as well as gaming, TikTok, etc., but that’s basically it. When you look at the technology world with a wider lens, China is next to nothing when it comes to aerospace, agriculture, satellites, cloud computing, weather, water… More or less, the States lead the way in almost all tech aspects. It doesn’t need someone else for this, but firms like Apple do, and no one wants to see a rival run wild abroad and return as Japanese firms did with consumer electronic products during the 80s.

Some believe that China’s oppressive government has the benefit of being in the position to invest large amounts of cash in new techs like distributed leverage and artificial intelligence, but the Chinese way isn’t inherently better. Brett thinks that the States, like other democracies, might be slower to act, but once the problem is pinpointed, they can come together to overthrow authoritarian regimes, which is a tactic used over and over since World War II.

There is still a danger of lagging too far behind, however, and some signals are alarming, like the lower patent activity in the US and the Blockchain Service Network, China’s government-backed distributed leverage project recently started an official international web page.

The Future of Capital

A handful in the cryptocurrency community, tho, are probable to argue with Larsen’s push for a more stringent regulatory approach to distributed leverage and cryptos, especially that tech is created and utilized by US firms, and to draw attention to digital payments generally where the US has lagged. As Tapscott said, all rational people have to be aware of what is at stake here and that we’re fighting for the future of money.

Because artificial intelligence, blockchain, and various other techs will be the basis of the global economy, and it will create employment. All advanced countries must tackle the issue of new tech and grasp it.

To summarize, the relationship between the US and China comes down to more than tech – it deals with trading partners, the economy, geopolitics, human rights, weapons, etc. But even in the technology branch, digital coins and distributed ledger tech are just a part of the whole picture.

Still, digital coins and such tech represent new tech that will grow bigger for sure. That aside, various additional trends such as a step away from globalization may make the CBDC launch just an event – we all might come to see that the digital yuan is no more than a digital currency with no convertibility, trading partners, and political and military allies.