Euro, Dollar and Digital Yuan: Why CBDCs could be a danger to your freedom?

use of the e-CNY with a QR-code

The geopolitical stakes

The context of the US war (through the Ukraine) against Russia underlines the ability of the United States (and relatively speaking of other Western countries) to use its monetary power (Dollar, SWIFT network, Visa etc.) to paralyze, more or less effectively, the economy of a country considered “problematic”.

However, the arrival of digital currencies in the monetary world has disturbed the overpowering power of the American dollar. Decentralized currencies such as Bitcoin or Ethereum, to name but a few, offer an alternative, transparent and bank-independent way to transfer monetary funds. This could challenge the share of the euro and the dollar in the world’s official foreign exchange reserves. Indeed the dollar represented about 59% of global reserves and the Euro about 21% in 2019 according to Bloomberg. Leaving other currencies such as the Chinese Yuan with 2% of global reserves.

Thus, this American supremacy does not have control over alternative networks that do not pass through the inter-bank network SWIFT, nor by the dollar, nor by banks with links to the West. It is with this in mind that China is working on the Digital Yuan or e-CNY: a digital currency or CBDC (Central Bank Digital Currency) controlled by its central bank, independent, programmable and giving its government tools to monitor its economy and its users.

Beijing wants to position its e-CNY for current local and international use, in a way that is totally detached from the global financial system where the United States has been king since the end of the Second World War.

“To protect the sovereignty of our currency and its status as a legal tender, we have to think ahead,” Mu Changchun, who heads the project at the People’s Bank of China, told the Wall Street Journal.

In an article published by CNAS, authors Yaya J. Fanusie and Emily Jin capture how well China understands the geopolitical importance of its digital currency project. They recount how Yao Qian, the former head of digital currency research at the People’s Bank of China, compared his country’s progress on digital currency to previous Chinese advances in robotics, big data and artificial intelligence.

China’s yuan digital wallet now has 260 million individual users:

The fact that an authoritarian state and a rival of the U.S. has gotten a head start on introducing a national digital currency is propelling what was once a shaky topic for crypto-currency theorists into a point of anxiety in Washington.

The U.S. Federal Reserve is concerned about being too hasty in introducing a digital dollar, given the stakes as a global reserve currency. The biggest geopolitical danger, however, is how quickly it is falling behind.

Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell suggested in February 2021 that a digital dollar was a high priority project for the United States.

In conclusion, digital currencies, whether centralized (e-CNY and other CBDCs) or decentralized (Bitcoin, Ethereum etc), represent a major issue in the world of global finance, endangering the American throne that has been untouchable for nearly 80 years.

The political and economic stakes

A common prejudice would be to think that current currencies are already digital currencies in the sense that services like Apple Pay in the West or WeChat and AliPay in China already allow digital financial transactions. However, these tools only transfer money electronically, CBDCs replace the money itself with computer code.

This changes a lot of things for the individual and the legislator. Indeed, CBDCs are programmable currencies, like the smart-contract on Ethereum. The money can be programmed in advance to, for example, have a defined expiration date, be limited to the purchase of specific items (such as your bills in the context of an “energy cheque”) implying that you cannot buy what you want with money programmed for this purpose, etc. And this programming is only transparent to the legislator’s will, nothing obliges him to tell you if the money given to you has been programmed or not. The possibilities of financial programming are uncountable, it is difficult to describe the limits and this power will be entirely in the hands of the issuing central bank.

Blockchains like Ethereum, Solana or Binance SmartChain also allow programming through their smart-contracts but these are open to everyone, everyone can see how all the smart-contracts that are active in them are coded unlike CBDCs where the code would be entirely opaque.

CBDCs also provide real-time economic data to the Central Bank. Using this technology, the legislator knows in real time how much money a company is generating, which sector is generating the most money and which product is selling the most. All this without any action on the part of the company. This logic also applies to individuals, nothing prevents the government from knowing your smallest expenses and to act against you if they judge that your behavior is dangerous.

In Europe, things are moving fast. The European Central Bank intends to launch its first prototypes in 2023 and they have also provided some details on its “global organization”: We learn that the EU is thinking of setting up a payment qualified as “anonymous” but only “under the 200 euro mark”, that is to say that any transaction above this amount will be inspected in a non-anonymous way in an internal system of the ECB.

This statement shows the notion of “control” that the ECB wants to establish, the article as a whole introduces the concept that “current money is too dangerous”. Implying that it is because of the current monetary system that there is drug trafficking, arms trafficking, tax evasion etc.

Emmanuel Macron confirmed in an interview with The Big Whale (21/04/2022) that “What is happening must also lead us to go much faster on the subject of the digital euro”.

At the same time, Mr. Macron also said that he wanted to “abolish anonymity on the Internet”, an anonymity that already does not exist since the IP addresses of the overwhelming majority of the population can be traced relatively quickly by law enforcement.

Moreover, during the presidential debate between 2 rounds, when journalists ask him what will be the next technological revolution that Europe must follow, he answers “European Cloud”. A very centralized data storage technology on a continental scale…

The icing on the cake, the French government announces the implementation of an electronic identity card to “simplify administrative procedures”.

Make your own conclusions on the scheme that is taking shape.

Thus, CBDCs represent a major political and economic stake for the United States and Europe. This race presents a major risk for the population since very dangerous drifts can take place when this is combined with a strong data collection and when these data are stored in a centralized way.