The New Money and the New World

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.