Launch of DigiYuan and its repercussions on the
world
#COVID-19
has eclipsed another momentous event – China launched its crypto-currency this week.
An official crypto-fiat built around block-chain is very different from cash or
electronic money that exists today in mobile wallets and bank accounts. Through
this article we first understand the disparity between existing electronic
money and block chain based crypto-currency, followed by the impact that
Chinese DigiYuan could potentially have on China and the world.
The
development quotient of a nation can indeed be estimated from the higher
proportion of electronic payments vis-à-vis paperback. Electronic money,
clearly identifies the payee and the payer making it relatively difficult to
evade taxes, making money cleaner. Most transactions in North America, Europe
and developed East Asia are electronic. Nevertheless, crypto-currency is very
different from all existing electronic money transactions. It is important to
observe that crypto currency is not one uniform lot in terms of technology.
There are innumerable different technologies that are used for creating crypto
currencies. Therefore, we focus on the minimum common denominator which is invariably
available in every type of crypto currency. Following are the crucial features
of crypto currency qua electronic money:
1.
Electronic transaction
ledger rests with everyone. There is nothing to steal. And at current level of
computing technology the ledger is immutable.
2.
Block chain does not
require any central agency, authentication or trust centre that authorizes and
underwrites a transaction. Since, a common ledger is available, changes, if any
made, are visible to everyone. A simple analogue would be sharing a Google spreadsheet,
such that each participant can make changes in the spreadsheet, but the changes
are validated only when each of the participant agrees to the proposed change.
3.
Crypto-currency can
be issued in lots, such that different lots are governed by different rules.
Therefore, it is possible to create multiple currency types pretty quickly.
4.
The issuer can exert
control over the currency even after it is issued.
5.
Crypto currency can
be created to be completely opaque or completely transparent along with
automated reporting of various types of transactions including those which
could tantamount to corruption.
6.
Lastly and
critically, crypto-currency when programmed as a smart contract has the
capability to work on its own without any action required to be triggered by
the owner.
7.
Open electronic
marketplaces make it extremely easy for the end user to transfer or exchange
this currency globally, as all it needs is an internet connection to be
accessed or used.
Aforementioned
are pretty much the most gravitational changes that block chain brings to money
vis-à-vis existing electronic money.
Need
of a smartphone for carrying crypto-currency is a misnomer amongst masses. It is
only partly true. All crypto money is computed, binary money. A computing
device is required only for transactions, especially those where one is a
sender (not a recipient) of crypto-currency, quite like existing electronic
money. Secondly, there is a possibility of creating very cheap
electronic-wallet devices or cards that connect electronically &
independently or parasitically (when in proximity or connected to a terminal,
without its own display, like cards). These wallets can be produced so cheap
that they can be provided free of cost by Governments to all its citizens.
Pretty much like the Banks give away debit cards along with account opening.
In
context of all the aforementioned, China’s launch of its crypto-Yuan is very
significant. China achieved the status of an upper middle income nation through
prudent use of its inexpensive work force, making itself into the factory of
the world and through financial policies that let it grow at astronomical pace.
It now clearly sees that depending on export for the next push in growth is not
possible. Concurrently, One-Belt-One-Road has had an undulating beginning.
China, therefore knows it needs to now grow its domestic market. Secondly, it
needs a performance spurt. Weeding out corruption is a major efficiency
exercise. It can easily add 1-2% point to growth annually. Besides which, it
will have a cascading impact on a number of other aspects of economic, social,
cultural and political life. It could also create a renewed interest in China as
a great clean large market to invest and do business.
China
is a single party authoritarian regime. Such a regime has complete control over
national resources and can legally draw resources for its sustenance. The Party
and Government are both the same and hence everything belonging to the
Government belongs to Party. Therefore, institutional corruption, which in
democracies exists through business-political quid-pros for politicians to
access resources for electioneering is not required. Corruption in such
‘institutionalized authoritarian’ nations is a result of individual human’s
propensity to monetize power for richer living or for accumulating further
additional power. The word ‘institutionalized authoritarianism’ stands for one
in which the public and the ruler are in an equilibrium that is discovered
through decades long struggle amongst them, such that the endurance and
reliability of such regime is as high as that of democracies, while those
aspects of living, which free societies term as ‘absence of freedom’, are so
deeply impregnated into the cultural fabric of the nation that they no more
seems authoritarian.
“Socio-political freedom has no absolutist existence
or features, it is a bargain within the cultural context of a nation.”
By
slowly replacing paper money with a crypto currency, China will be able to gradually
weed out close to all individual corruption, technologically. This could lead
to a much better performance, better economic efficiency & better image of China.
Furthermore, a stable China with easily available Digi-Yuan for international transactions
could in no time become an international transaction currency, though it might
never become a reserve currency for the same political reasons of opaqueness
and authoritarianism. This will grossly impact the current status of US Dollar
as the world money (currency of exchange and transaction) as well as the
reserve currency. While US Dollar will still retain the status of reserve
currency; but the world money status might quickly decouple itself from US and
agglutinate to China.
As
mentioned above, a clean and transparent China will also attract attention and a
second wave of investment. Where does it leave us in India, Russia, Europe and
US and rest others.
Remember
70s? US and China build a seller-buyer relationship that thrived for almost
four decades. China will now built one with the developing nations of Asia,
Africa, South Europe and South America. Whereby, these nations will become the
projections of Chinese Power and rich in DigiYuans. Quite like China became rich in US Dollars and only now understood that it was fooled for exchanging its natural resources for a song and 4 trillion American promises. In this India has been much more intelligent than Chinese, we exploited for resources for ourselves, China ravaged them for US!
Russia
faces a lot of internal challenges – most crucially lack of ideology.
Socio-culturally, Russians are very different from both Asians and Westerners.
They operate most efficiently when provided a common clearly identifiable by
most, ideals. Happiness and prosperity for all has not really cut ice with
Russia, notwithstanding repeated propositions of President Putin, who has
dominated the Russian mindspace for last two decades. China has two very large
neighbours – India in south, Russia in north. It is clear that China has learnt
to deal with both adeptly. Russia is treated with equity and respect –
something Europe and America failed to provide Russia. Russia with its large
pool of resources & a sensible size economy will happily embrace DigiYuan
as the world money (transaction currency). Reasons simple and straight - Euro, does
not want to be one, Ruble cannot be one, so left off are US Dollar, that it
dislikes and Digi-Yuan, which it will perhaps adopt and accept.
Africa,
some parts of Asia (Iran, Pakistan etc.) S. America – all those being supported
by China will have little issues with use of DigiYuan.
Europe
is orphaned, with identity lost to America, a lukewarm European United Front
and contradictions within. They surely do not stand to compete China. And
individually, not collectively, (as EU) will subscribe to DigiYuan as a
transaction currency. Having said the aforementioned, Europe will have a
positive, but cautious approach rather than a camaraderie with China.
US
might subsequently be left with only India and Middle East (till the Monarchies
don’t die along with Oil, which though not immediate, but is now apparently declining
on the horizon). Australia, Canada, UK are too small an inconsequential
separately, while their colonial past will never let them unit together.
India
is seen to be of no botheration currently, as the democratic contradictions
within India are seen as a safety valve that will never make India a threat for
China.
Assisted
by US, brooded by Europe and politically no more a push-over, could India gain
from the current COVID crisis by being the other large market for sourcing,
manufacturing, selling and exporting?
A
popular Digi-Yuan will force other nations including India & US to issue
their own crypto-currency. With all crypto-currencies freely available on
internet, transferred without intermediary and State control, coupled with very
high level of universal awareness and connectedness amongst people of the
world, the world is poised to be more dynamic than ever. Brace for the change.
With
Digi-money issued as smart contract, the role of Banks as medium of trust will
be annulled completely. Would all money be crypto money, the role of banks will
be reduced to asset management companies. Furthermore, with ever expanding role
of relatively better algorithmic scrutiny and rating along with an easily
analyzable record of crypto-money, the role of Asset Management by Banks might
also completely shift to an AI system, which rates and assesses debtors, and
provides the depositors to choose risk-return for themselves, in other words - a
new era of crypto-bonds is visible on the horizon. This will be an end to
Banking as we know it now. Each of the aforementioned elements are individually
already evolving.
Another
major impact of gradual introduction and dominance of crypto-currency in China
will be – birth of new economics. Most Economics Nobel Laureates
(including Abhijit Bannerjee) would have spent their life gathering
monetary & other data from the economic limbs of a society – individual citizens; to see
the impact of money, its distribution, its circulation speed etc. All this to verify the causes of trickle-down effect, if one exists. With complete traceability in crypto (one can in one click trace all the owners
of each and every single Digi-Yuan from the day it was issued/mined to the
present day) most of these economic theories will be facts, rather than
hypothesis in flux. What trickles down, what does not will be transparently
visible and will cease being a matter of expert guesses and debates. This will enable a
completely new type of development economics to be born in China. Akin to
shooting a guided-missile, bang on target, than hurling tens of unguided
projectiles, this development economics will be highly directed for the target population
(directly or indirectly). Pilferage shall be marginal. Upliftment of underprivileged will be dramatically catalyzed. And China will be driven into a new unmatched league of its own. And all this seems happening with their decisiveness. So brace for it.
So
will India rise to the occasion? The tone of the answer, like in any other
democracy, will be decided by the people of India, the tenor by its leaders.
India has always been more American than America. The best team work most
Indians are capable of is when playing alone. Therefore, in some sense we are
opposites of Russians. Russians have immense capability to unify around an idea but are lacking great unifying ideas. India has great unifying ideas but lacks
any desire in its people to unite constructively.
“Constructive Union is a tendency of people to make
an idea happen, Diversionary Union on the other hand is the one that happens
when people unit to avert a calamity brought on them by nature or internal or
external forces. Such unions are nothing but acts of collective survival. They
are instinctive, not strategic.”
India,
like America might not adopt use of Digi-yuan. But then, democracies can direct, not dictate the direction of a meandering river. The final verdict, irrepective of Government lines, will be
delivered by the people of India and America. And in
this lies the beauty of democracy that is precious, even if it comes at the cost
of economic prosperity.
BY DEEPAK LOOMBA
write to the author on dl.dstl@gmail.com on in the comments section below.
