The South China Morning Post runs this interesting new article that argues that China will use its lead in "blockchain technology" to implement a new "digital" renminbi. The article goes on to further say that China will use this new system to avoid US sanctions and bypass the SWIFT system. It also predicts that by 2028 China will surpass the US economically and this new digital currency system will be a key part of that.
I sent this article to a leading global expert on Fintech who knows where things stand around the world in terms of the potential use of blockchain technology for digital currencies by central banks. He has worked in this arena every day for years with banks, central banks, and private companies exploring the potential use of blockchain technology. I view him as without question one of the leading experts in the world on this topic.
Below are three key points I felt were stated in the SCMP article and then the response to those three key points by this global expert. He offered these comments exclusively for readers here, but prefers them to be unattributed.
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1-China is by far the global leader in "blockchain technology" which will support the new "digital" Renminbi system China is building.
Response:
"It is an interesting claim to fame: there is not much to be had in the leadership of blockchain technology - it is a relatively simple technology, with a lot of complicated moving parts that don't particularly add a lot of value in the real world. As such, there are not a vast array of levels of competence possible in the field - you either know what it is, or you don't - and you either use a distributed system, or you do not. My comments would be on this topic, that even if leadership in blockchain was such that it could be distinctive, and thereafter, emphatic - it is still by all accounts, at this time, inconsequential to hold leadership in this expertise. If China believes it has something of an accolade in proclaiming this - it is an odd misunderstanding of technical capacity, or of prowess."
2-This system will allow China to bypass SWIFT and US sanctions and eventually dethrone the US dollar a global reserve currency in years to come.
Response:
"Any system can bypass SWIFT or the US Sanctions if it is independent of SWIFT or the USD. Obvious examples to date are Ant, WeChat, and any other payment platform not used by an institution that also uses USD. Just like the Brazilian local payment system is independent of the Chinese political sanctions lists. It is again - a very poorly developed claim and the SCMP should know a lot better - as should whoever called for this article's existence.
There's no real link to the claim that distributed ledgers can cause or catalyze any form of technical incentive against Dollar superiority - Dollar superiority is legislative and economic. The US is an innovative, rule of law, consumer protection, and thought leading superpower. China is a constantly moving bureaucracy of personal political connections. As we've seen with Jack Ma, say the wrong things at the wrong time, and your business evaporates.
As a place to park your money.... I don't see China's brand, or economic stability, being sufficient to challenge even the GBP or the Yen, as a reserve currency yet. Chinese "banking assets" are still around the USD 2 trillion mark - the US is almost 10 times this (according to the Central Bank of each nation). The US is a reserve currency because it is large, very predictable, and most of the time (more than most) very rational. And that's not the nature of the Chinese system yet".
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