🔍
Could China Dethrone The U.S. Dollar With A Digital Yuan? - YouTube
Channel: CNBC
[2311]
The first known examples of
paper money were developed in
[2314]
China over 1000 years ago. And
today China is disrupting money
[2318]
again by being the first major
economy to develop and deploy
[2323]
its own digital currency. And
the world seems ready for it, as
[2327]
services like Venmo, Apple Pay,
and cryptocurrencies, like
[2330]
Bitcoin have prepped us for
virtual transactions. But the
[2334]
digital yuan is different. It
doesn't rely on physical money.
[2338]
It's just computer code.
[2340]
The digital you want has rolled
up quite fast. In some cases,
[2343]
like in Shanghai, for example,
there's a shopping mall and
[2346]
there are a couple of locations
like a shopping mall or the
[2348]
subway where the digital yuan
will be used.
[2352]
It's called a central bank
digital currency, or CBDC, and
[2357]
China is not alone in its
ambitions to digitize money.
[2360]
Over 80% of the world's central
banks are now exploring this and
[2364]
very few have made the decision
to go ahead.
[2366]
A CBDC is almost an amalgamation
of a cryptocurrency and a
[2371]
standard currency. It's all
digital, but it is created and
[2375]
controlled by a government
and/or a central bank.
[2378]
CBDC is fundamentally pretty
simple. It's another form of
[2382]
money, like the money we have
today. But there still is a lot
[2386]
to figure out about exactly how
it should work. First of all,
[2389]
we're not exactly sure how it's
going to be distributed, how
[2392]
people will hold it, whether it
will require them to have a bank
[2395]
account, for example. And we're
still figuring out things like
[2398]
how we can make a CBDC work
offline, and how we can protect
[2403]
people's privacy to make sure
that we aren't keeping a record
[2407]
of everyone's transaction
somewhere.
[2409]
The US dollar remains the
world's de facto monetary
[2412]
reserve. But with so many
countries like China going full
[2416]
speed ahead to develop CBDCs for
themselves, the US dollar faces
[2421]
a challenge: either follow the
trend, find a better solution,
[2425]
or risk losing its place in the
world economy.
[2429]
This is the single most
important move on the global
[2432]
chessboard in the last 20 years
is how the United States and its
[2436]
allies, interfaces or doesn't
interface with the Chinese
[2440]
central bank digital currency.
[2447]
Today, when you want to send
money to someone, it's actually
[2450]
pretty clunky. You've got Venmo
cash app and Zell which are all
[2454]
improvements over the days of
wire transfers. But there are
[2457]
limits to what you can send and
it can still take days to
[2460]
process. Enter Bitcoin. Bitcoin
was built on and originated
[2465]
blockchain technology, which
speeds up this whole process.
[2468]
Without going too deep into it,
Bitcoin and other
[2471]
cryptocurrencies transfer money
using a decentralized
[2475]
distributed ledger. There is no
central company, government or
[2479]
entity controlling these
transactions. To keep things
[2482]
accurate and secure. The system
compares all of the ledgers to
[2486]
make sure that it stays up to
date and contains the same
[2489]
information.
[2490]
A central bank digital currency
is governed, there's an
[2492]
organization that can mint more
of it or take it away, that's
[2495]
usually represented by the
government of a country. So
[2498]
that's in contrast to
cryptocurrencies which do not
[2501]
represent nation state fiat
currencies.
[2503]
A CBDC would offer some
similarities of both a
[2507]
cryptocurrency and a traditional
currency. It'd be digital and
[2511]
could even be built using
blockchain technology, but it
[2514]
would be centralized and
controlled by the government and
[2517]
banks.
[2518]
The idea with CBDC is that it
might be the case that you can
[2521]
make payments without going
through a financial institution
[2524]
just the way you do so with cash
today.
[2527]
So what would be giving this
digital dollar any value? Well,
[2532]
what gives a physical dollar any
value, among other things, it's
[2536]
trust.
[2537]
If people trust money they'll
use it. It doesn't really matter
[2540]
if it has a physical backing,
it's still worth $1 because you
[2543]
can turn it in for $1 worth of
something else, and everybody
[2547]
accepts it.
[2549]
Right now, 67 countries are
researching, developing or have
[2553]
a pilot program for a CBDC.
Among them are China and the US.
[2558]
So there have been these
experiments. And they're, I
[2561]
mean, relatively small scale for
China has its 1.2 million people
[2564]
– sounds like a lot, but in the
Chinese context, not really.
[2568]
China launched its digital yuan
in parts of the country and it's
[2571]
incentivizing people to use it.
[2573]
You sign up with your bank, and
the bank will then give you a
[2577]
digital wallet and in that
digital wallet, you'll have this
[2579]
red packet of money and then you
could spend it either online for
[2583]
example, like a JD store, or you
can go to these shopping malls
[2587]
or other locations depending on
where you are in the country.
[2590]
But the US is taking a
smart-over-speed approach.
[2593]
The chairman of the Federal
Reserve, Powell, said we'd much
[2596]
rather get it right then to be
first.
[2598]
Some people are speculating that
the US dollar could lose its
[2601]
supremacy in the world economy
because of China and the digital
[2605]
Yuan.
[2605]
I believe the digital one is the
largest threat to the west that
[2609]
we faced in thelast 30, 40
years.
[2612]
Currently 62% of the world's
currency reserves are held in US
[2616]
dollars.
[2617]
What that means is that if
people are trading, for example,
[2621]
between, you know, the Japanese
yen and the Indian rupee, it
[2625]
might be the case more often
than not that they actually do
[2629]
that deal in dollars.
[2630]
But Goldman Sachs predicts that
the digital Yuan could have 1
[2634]
billion users by 2030. That's
triple the entire population of
[2639]
the United States.
[2640]
So it certainly might be the
case that if there's a digital
[2643]
currency and another currency,
not the dollar, and people
[2646]
really like using it, they might
start using that currency more,
[2649]
and they might decide to keep
some of their holdings in that
[2652]
currency. But that's just one
pillar on what makes the dollar
[2655]
the world's reserve currency. So
there's, there's still a lot of
[2658]
other factors in that.
[2659]
But it's still not really known
whether a CBDC is the right
[2662]
thing for the United States. So
let's take a look at some pros
[2666]
and cons.
[2668]
We'll start with some of the
benefits that a cbdc could offer
[2671]
the United States;
sustainability, speed,
[2675]
convenience, and access.
Concerns over Bitcoin and its
[2679]
power consumption have put
cryptocurrencies, even the ones
[2682]
with less power requirements, in
a bad light.
[2685]
The reason that Bitcoin uses so
much energy is because it is
[2690]
trying to operate in a very
specific kind of environment
[2693]
where there's no one in charge.
A central bank, digital currency
[2697]
does not need to operate in that
exact environment. There is an
[2701]
organization in charge; the
central bank.
[2703]
And it's fast. Other countries
who have tested cbdcs have seen
[2708]
real time payments, which means
you send the money and it is
[2712]
instantly someone else's. And
that includes sending money to
[2715]
people in other countries.
[2717]
Remittances are money that's
sent from one country to another
[2720]
country, and usually involves an
exchange of currency as well.
[2723]
And traditionally, these have
been extremely expensive.
[2726]
Say you want to send $100 to
someone in the Philippines via
[2730]
Western Union, a popular
international money transferring
[2733]
company. You pay a fee as high
as $7.50, and the cash would be
[2738]
converted at a lower rate,
meaning that person would get
[2742]
less than what you sent after
conversion. It can also take up
[2745]
to four business days to get
there. With a CBDC these
[2749]
transactions would be instant,
and possibly fee free.
[2753]
There will be tests in a CBDC
Bridge project involving Hong
[2757]
Kong, Thailand, China and the
United Arab Emirates. They're
[2761]
building a bridge that would
allow these cross border
[2763]
payments to occur through CBDCs
in a very slick way.
[2767]
Another benefit could come to
the 7.1 million Americans who
[2771]
don't have a bank account. 13.8%
of black households were
[2776]
unbanked and 12.2% of Hispanic
households were unbanked in
[2781]
2019, while white households
were only 2.5% unbanked. The
[2787]
most cited reason for not having
a bank account was not having
[2790]
enough money to meet the minimum
balance required.
[2793]
And that has repercussions. It
means that it might be harder
[2797]
for them to make payments, it
might be more expensive for them
[2799]
to get loans. And it's certainly
the case that people are looking
[2803]
at central bank digital currency
as potentially a mechanism to
[2807]
help with financial inclusion.
Now, whether or not that's
[2810]
actually going to work remains
to be seen.
[2815]
Then there are the concerns to
consider. We have trust,
[2819]
privacy, innovation, and again
access.
[2824]
The second most cited reason for
7.1 million Americans not having
[2828]
bank accounts comes down to
trust. More than a third of
[2832]
those unbanked Americans don't
trust banks. For the folks
[2835]
developing a CBDC in the United
States, that's a key driver
[2839]
behind the project.
[2841]
A different type of architecture
that didn't sort of charge these
[2845]
appearingly random fees would
certainly be more compelling to
[2849]
people and would help to
establish deeper trust.
[2851]
Americans are distrustful of
centralizing their data, and
[2856]
it's ironic that they are in
many cases happy to give their
[2859]
data to the phone company or to
the bank or to Google but they
[2863]
wouldn't be happy to give it to
a central bank or government
[2866]
agency that's there to protect
their data. Other countries
[2870]
don't seem to have as much
concern about that.
[2872]
It sounds kind of surprising, I
think, from a Western
[2876]
perspective, or from a US
perspective, that people here
[2881]
would feel more comfortable with
the government managing their
[2884]
money or have being responsible
for the digital yuan as opposed
[2888]
to having their money in a
private entity such as WeChat or
[2894]
Alibaba. A lot of people are
much more comfortable and also
[2898]
just used to the idea that the
government is tracking what
[2903]
they're doing.
[2904]
If there is a digital dollar,
privacy is going to be a very,
[2907]
very important part of that.
First step is to be very careful
[2910]
about what data is collected in
the first place. The second is
[2913]
to think very carefully about
rules and laws and regulations
[2916]
around that data that is
collected. The third step is to
[2920]
investigate cryptographic tools
that can help us store data in
[2924]
an encrypted way, while still
making that data useful to
[2927]
people in aggregate.
[2929]
CBDCs could also pose a threat
to the $1.3 trillion
[2933]
cryptocurrency market. While the
whole lot of people in the world
[2937]
today see cryptocurrencies as an
investment, the real goal of
[2941]
cryptocurrencies like Bitcoin,
at least, were to be spent
[2945]
easily and internationally. And
that might not be necessary
[2948]
anymore if we have CBDCs.
[2951]
Our opinion is that CBDCs and
cryptocurrencies are going to
[2955]
coexist, and they're probably
going to reinforce and help each
[2958]
other. This is all about the
upgrade of money, and it's
[2961]
happening in multiple different
ways. So people who are
[2965]
interested in buying holding and
using cryptocurrency, a good
[2968]
number of them do so because
it's not a central bank backed
[2972]
currency.
[2973]
And a CBDC in the US has
potential to stifle FinTech
[2977]
innovation. Right now, there are
a lot of things happening in the
[2980]
world of digital currencies and
financial technology.
[2984]
I don't think the US should
build its own digital currency,
[2987]
if it stifles innovation, like
Diem or like certain kinds of
[2991]
FinTech firms. It needs to leave
space for innovation for
[2995]
entrepreneurship and not say,
you know, we are the solution
[2999]
for everything.
[3000]
And while a cbdc could help
those Americans without a bank
[3003]
account, it could also expand
the technology gap. 7% of
[3008]
Americans say they don't use the
internet. For black Americans
[3013]
that rises to 9%, and for folks
over 65, that rises to 25%. Only
[3021]
85% of Americans say they have a
smartphone. That's even less 83%
[3027]
for black Americans. And
Americans with a disability are
[3031]
three times as likely as those
without a disability to say they
[3035]
never go online. So switching
our financial system to an
[3039]
entirely digital one could have
some negative impacts for
[3043]
already underserved communities.
[3045]
A central bank digital currency
would likely have the effect of
[3048]
reducing the use of paper money,
and the unbanked, of course, are
[3051]
relying heavily on paper money.
If you make paper money so
[3054]
unpopular that it starts to be
difficult to spend, then that
[3058]
could actually harm the
situation of some unbanked
[3060]
people unless you have a
solution that reaches well into
[3063]
that 7.1 million household group
of people that are currently
[3067]
unbanked.
[3068]
A system where we don't use
physical money anymore is not
[3071]
hard to imagine, and might be in
our near future. But the route
[3075]
we take to get to that future is
likely to look very different
[3078]
from China.
[3079]
There are some estimates that
China could be completely
[3083]
digitized within the next five
years. So that is really quick.
[3088]
Most of the work that we're
doing assumes that CBDC will
[3091]
coexist with physical cash, and
that users will still be able to
[3095]
use physical cash if they want
to. Now, the fact of the matter
[3099]
is that a lot of the world is
moving into the digital realm,
[3102]
and it's probably the case that
the use of physical cash is
[3106]
going to decline in the future
if more and more moves online.
[3110]
A CBDC does not get a unanimous
vote of confidence in the United
[3114]
States. There are other options.
Stablecoins, for instance, like
[3118]
Tether, USDC, and the upcoming
Diem are cryptocurrencies linked
[3123]
to the price of $1.
[3124]
In general, the US payment
system is behind – whether you
[3127]
use a new central bank digital
currency, whether you use a
[3131]
private stablecoin, whether you
allow FinTech firms to play a
[3135]
bigger role. So there are
different approaches. And the
[3138]
United States is going to, I
hope, going to develop a clear
[3140]
strategy for improving its
payment system because that just
[3144]
adds to the strength of the US
economy and it helps individual
[3149]
people in the US. It all comes
down to helping people.
[3152]
Regardless of the solution, the
US will have to keep up with an
[3155]
increasingly digital world,
especially when it comes to
[3158]
money, where competition between
China's digital yuan is heating
[3162]
up.
[3163]
China has certain reasons why
they are probably launching a
[3166]
digital currency. And it's not
clear that China's reasons map
[3170]
on to the United States, which
is a very different environment.
[3174]
So I think it makes a lot of
sense to go slowly, to do very,
[3178]
very thorough research and to
try to find out exactly how this
[3181]
technology might work and
exactly what problems it might
[3183]
help with.
Most Recent Videos:
You can go back to the homepage right here: Homepage