Threatens US power

Could it kill the US dollar?

Welcome to China Uncensored. I'm Chris  Chappell. China's new digital currency  

is a huge threat to the US.

But first remember to like this episode  and subscribe to China Uncensored.  

Our episodes also often get  demonetized. So if you can,  

please support the show on the  crowdfunding website Patreon.

And speaking of funding, China has  created its own digital currency.

It's known as the digital yuan, the digital RMB,  

or sometimes the e-Chinese yuan, to make  it as awkward as possible to talk about.

“China's version of a digital  currency...is expected to give  

China's government vast new tools to  monitor both its economy and its people.”

But the digital yuan isn't just about  the Chinese Communist Party's ability  

to control its own economy. It's  also about the Chinese regime's  

increasing global power, and its  long-running battle with the US dollar.

For more on that, we go to Shelley Zhang.

Shelley?

Thanks, Chris.

China's digital yuan is the anti-Bitcoin.

Bitcoin is not controlled  by any central authority,  

and Bitcoin can offer almost  anonymous transactions.

But China's digital yuan is controlled  by the Chinese Communist Party,  

and the Party can see  everything you're doing with it.

It's kind of like Chinese leader Xi Jinping  is watching all of your Venmo transactions.  

I have no idea what this is Chris, but  you spent almost 300 dollars on it,  

so it's probably embarrassing  enough for blackmail.

“Hey! How did you get that?”

Moving on.

Of course, China's central bank  claims that it “will limit how  

it tracks individuals,” with the digital  yuan, through “controllable anonymity.”

And if you believe that, I've got  an invisible bridge to sell you.

But it's not enough for the Chinese regime to  watch how its citizens use the digital yuan.  

They also want to be able  to control when they use it.

“Beijing has tested expiration dates  to encourage users to spend it quickly,  

for times when the economy needs a jump start.”

Forget giving people stimulus checks and  hoping they spend it to help the economy,  

like the US government does. China can make people  spend their own money, or else they take it away.

Of course, there are some  caveats. If you're Uyghur,  

then the digital yuan expires twice as fast.

And if you share a Winnie the Pooh meme,  

the government just takes all  your digital yuan. Forever.

Ok, that's not true. Yet. But the digital yuan  would give the Chinese Communist Party the ability  

to do those things. They could use it to monitor,  control, and punish dissent more easily than ever.

Chinese people have already been primed to use the  digital yuan from years of using mobile payment  

apps like WeChat Pay and Alipay. Those apps have  turned China into an almost cashless society.

We've talked before about how WeChat Pay  and Alipay are basically surveillance money.  

And how sucking up all of this user data has  made the tech companies who own these apps  

even more rich and powerful.

But now that the digital yuan is ready,  

the Chinese Communist Party is starting  to crack down on WeChat Pay and Alipay.

Why go through the hassle of having to get user  data from tech companies when the central bank  

can just collect it directly with the digital  yuan? They're just cutting out the middleman.

Of course, the central bank also  says that the digital yuan will  

coexist in harmony with Alipay and WeChat Pay.

But if you believe that's the  long-term plan, I'm telling you,  

that invisible bridge has some  stunning views. Really worth the money.

But the digital yuan isn't just about  domestic control. It's also about  

international control. I'll  tell you why after the break.

Welcome back.

The Chinese Communist Party  hates the fact that China,  

like the rest of the world, is dependent on  the US dollar as the global reserve currency.

“Nearly 90% of foreign-exchange transactions  involve dollars and...more than 60% of all  

global central-bank reserves are  held in dollar-denominated assets.”

That gives the US a lot of power. For  example, the dollar's dominance is a big  

reason why US sanctions on countries  like Iran and China actually work.

Just ask Hong Kong Chief Executive Carrie Lam,  

who literally has piles of cash at home,  and no bank account, due to US sanctions.

For more than a decade, the Chinese Communist  Party has tried to internationalize the yuan.  

They want to position the yuan as the next  global reserve currency, challenging the dollar.

So far, it's failing.

Here's why people use the dollar as a global  currency: the US is a huge economy that people  

do a lot of business with, it's really easy  to use US dollars for trade and investment,  

and dollar assets are a safe,  stable place to park your money.

China is also a huge economy. But otherwise, the  dollar and the yuan are almost exact opposites.

The Chinese Communist Party has strict capital  controls on the yuan. That means they strictly  

control how much yuan can leave China. Which makes  it hard to use the yuan for trade or investment.

And it's also not a safe place to park your money,  because Chinese authorities use the yuan exchange  

rate to control China's domestic economy. That means they will do things like suddenly  

devalue the yuan when they  need to—like they did in 2015.

So if you owned yuan, it was suddenly worth  less. This makes the yuan less stable as a  

store of value. But Chinese authorities were  more concerned with boosting China's economy  

than that fallout from devaluing the yuan.

So unless the Chinese Communist Party wants  to give up this level of control, the yuan is  

not going to become a global reserve currency.  And they're not going to give up that control.

But the Chinese Communist Party is still using  the digital yuan to target the US dollar.  

I'll tell you how after the break.

Welcome back. So the Chinese Communist  Party failed at internationalizing the yuan.  

Which is why they're doing something  completely different with the digital yuan.

Instead of using the digital yuan to replace  the dollar in the global financial system,  

they're going to use the digital yuan to get  around the dollar and the global financial system.

China's central bank has said that one  reason they're developing the digital yuan is  

“to protect [China's] monetary sovereignty”  from Bitcoin and other cryptocurrencies.

But as the Chinese Communist  Party has said for years,  

China's monetary sovereignty isn't just about  countering Bitcoin. It's about countering the US.

Especially US sanctions.

“The chance to weaken the  power of American sanctions  

is central to Beijing's  marketing of the digital yuan.”

I'm sure Carrie Lam would rather be paid  in digital yuan than in piles of cash.

But it's not just about protecting  Chinese officials from US sanctions.

I'll let Chinese state-run CGTN explain.

“Currently, cross-border RMB settlement is  highly dependent on the US SWIFT system,  

but these cross-border payment and banking  systems have been weaponized by the United States  

to impose financial sanctions on multiple parties.  

The digital RMB provides an independent  alternative for cross-border payments.”

Chinese propaganda is truly an art.

But basically state-run media is spelling  it out for us. The digital yuan can help  

countries evade US sanctions. Yeah, I can think of a few  

countries that might like to evade US  sanctions by using the digital yuan.

In fact, two years ago, a  wargaming exercise showed how  

North Korea could use the digital yuan to  neuter US sanctions and buy nuclear weapons.

We're all going to sleep well tonight.

But of course evading US sanctions is going to  take both a digital yuan and an alternative to  

the SWIFT cross-border payment system. Which  the Chinese regime is already working on.

China's central bank is separately  working on a joint venture with SWIFT,  

because they still want the digital yuan to be  used by people who aren't evading US sanctions.

In the end, the yuan might never  become the dominant global currency,  

because the Chinese Communist  Party won't give up its control.

But the digital yuan can become  a parallel global currency,  

creating a parallel payments system to the US.

“The expansion of a Chinese  digital currency will ultimately  

pry open the U.S. grip over global  payments, and therefore compromise  

U.S. sanctions policy and a significant  measure of U.S. power in the world.”

The good news is that China is probably a year,  or maybe a few years, away from being able to  

use the digital yuan to get around US sanctions.  But we should be paying attention to this now.

Chris?

Thanks, Shelley. So I'm curious,  how is the US reacting to this?

Well, some experts have called  it a national security issue.

Yeah. It is. Good call.

But it's not totally clear how the  Biden administration sees the issue.  

According to anonymous officials  who talked to Bloomberg,  

they're “stepping up scrutiny” of the  digital yuan. Some officials are concerned.

But other officials don't seem to get it.

Bloomberg says that because China is working  with SWIFT, “U.S. officials are reassured  

that China's intentions aren't to use the  digital yuan to evade American sanctions.”

WHAT? Are they even paying attention?  

How can they think that China  *isn't* going to evade US sanctions?

I don't know, Chris. I guess they haven't  watched that Chinese propaganda cartoon  

where they specifically talk about using  the digital yuan to evade US sanctions.

Thanks Shelley. I'm definitely  going to sleep well tonight.

And now it's time for me to answer a question from  a member of the China Uncensored 50 Cent Army,  

fans who support the show on Patreon.

Lunar Worx asks, “Hey Chris. Do you think you'd  be able to cover the Taiwanese game developers  

Red Candle Games? They made video  games like Detention and Devotion,  

the later of which made them a  victim of the CCP's cancel culture.  

And could we get someone on the China Uncensored  team to do a "Let's Play" of either game?”

You know I remember hearing  about those games As you said,  

Devotion even got pulled from Steam for  hurting the feelings of the Chinese people.

That was a few years ago. But video games are  always an issue for the Chinese Communist Party.  

Like how Blizzard censored players  supporting Hong Kong democracy.

Video games very often seem  to become political news.  

That's one reason Matt, Shelley, and I have been  thinking of starting a video game channel. Not  

only to play these politically sensitive games,  but also as a forum for other conversations about  

politics. So now I'm going to ask a question. Is  that something you would watch? And do you have  

any suggestions for what you'd like to see on a  show like that. Tell me in the comments below.

As for us playing Devotion, it's a  horror game. Shelley scares easy.  

I mean, I would play it, but I  wouldn't want Shelley to feel scared.

Thanks for your question Lunar Worx.

And thank you for watching. Once again  I'm Chris Chappell, see you next time.