Digital Currencies, the New International Monetary System

The U.S. Treasury was in the process of delivering physical stimulus checks, when at the same time, the PBC (Peoples Bank of China) began beta testing of its new digital currency. Economists in the future may very well look at these two events as the start of the digital currency era.

Up until last August, any talk about alternative currencies was purely speculative. The speculation came to an end when Mark Carney, the Bank of England Governor, stated the answer to the destabilizing influence of the U.S. dollar in the current monetary system might very well be a new form of digital currency.

Governor Carney further suggested that the international monetary system could use a “synthetic” currency. Should this be the case, not all financial transactions would be dollar-denominated. As such, the demand for the Greenback would fall.

Interchangeable use of Terms

When it comes to digital money, people tend to use digital money, electronic cash, crypto, and digital money interchangeably. Electronic cash is a form of digital money. Electronic cash allows value transfer to take place without the need for any intermediaries. Bitcoin and other forms of digital currency is the mechanism that can be used for such transfer of value.

Many interested observers believe the work being carried out by the PBC is perhaps the most important initiative in the ever-growing world of digital money. For the PBC, this initiative is not necessarily new. For several years, China has been developing a strategy designed to replace cash with digital currency. A few short years ago, the Governor of the PBC said that the development of digital currency is “an irresistible trend, a trend towards replacing paper currency with new products backed by new technologies.

Governor Zhou went on to say that digital currency, as a form of legal tender, is best issued by the central bank. He also stated that the belief is that it could take at least a decade for digital currency to replace paper money.

The founder of China’s Digital Currency Research Laboratory suggests that there could be consequences for commercial banks. As such, it may be better to keep them as an integral part of any new monetary arrangement. To offset the inevitable shock to the existing banking system, it may be better to incorporate the attributes of a digital currency wallet into the current commercial bank system. Under this suggestion, both electronic currency and digital currency can be managed under a common account.

America Must Wake up and Begin Competing in the World of Digital Payments

Alipay and WeChat wallets in China are already being used to store renminbi in and out of bank accounts. The PBC has recently pronounced its intention to store Alipay and WeChat as the digital currency electronic payment. Chinese digital currencies are currently being tested in four Chinese cities.

China’s advancement in digital currencies brings into focus what may very well become the next cold war. Imagine for a moment if you would, 2 billion people all using Alipay and WeChat wallets. To start, the transition may use the national currency. If it proves to provide speed and convenience, it could very quickly shift to person-to-person transfers.

A trader in one part of the world can soon find that they can order goods from a Chinese company via WeChat, and then settling the invoice via Alipay. The use of digital currency could be of great benefit to trade and ultimate prosperity.