China’s Digital Yuan, SWIFT, PayPal & the Dollar’s Demise
Sebs Solomon—March 29, 2022
In August of 2021, Rajesh Bansal and Somya Singh released a working paper for Carnegie Endowment, titled China’s Digital Yuan: An Alternative to the Dollar-Dominated Financial System. I had been looking into China and the BRICS countries (which I covered here) and I found this paper to be a thorough explanation of how China became a global power, the corrupt payment rail called SWIFT, the creation of CIPS (China’s alternative to SWIFT), actions China took to internationalize their currency, and how the vast network of infrastructure projects through the Belt and Road Initiative helped expand the use of the renminbi or RMB—which was first issued in 1948 by the People’s Bank of China (PBoC). The renminbi (which means “the people’s currency” in Mandarin) is China’s official currency and acts as a medium of exchange, while the yuan is the unit of account of the country’s economic and financial system. For example, in the United States, money is exchanged with dollars and not “federal reserve notes”—meaning, the expression of price is in dollars just like the expression of price is in yuan in China.
Side note: Aly and I did a stream about China just the other day—it is linked below.
Anyway, I keep hearing that China has “undermined” the U.S. through its centrally planned government and its “win-win” cooperation with other countries rather than participating in the the classical “zero-sum game” played by the western nations. I agree with the critiques of the corrupt establishment that runs the western hemisphere and, to be honest, I think many people who live there also feel the same way. What I don’t understand is why China would be “allowed” to rise in this way? Would the “Open-Door” policy instituted by Deng Xiaoping in the 1970’s have benefitted China (with all of the western investment flowing in) if it didn’t also benefit the very people already doing well under the neoliberal economic structure? Was the coalition of the BRICS countries (Brasil, Russia, India, China, and South Africa) set up by Goldman Sachs as a possible reserve replacement for the dollar after its collapse? I’ll go into that further later, but first, I want to summarize what I believe to be the most important parts of this Carnegie Endowment working paper.
Note: this paper is coming from the perspective that the digital yuan is slowly “undermining” the hegemony of the U.S. dollar, but I have my own lens in how I view this shift or transition and it does not match the framing used by these two authors (Bansal and Singh); however, the information they provide is still worth extracting from and reviewing.
Bansal and Singh accurately point out that SWIFT is the largest cross-border payment clearing-house in the world (and it has to comply with U.S. sanctions); therefore, China has to create a new payment rail (like a CBDC) in order to move away from payments rails dominated by the dollar. Even the U.S.-China trade war was fueled by how much China depends on the U.S. cross-border payment rails. Which is why China is building an alternative payment infrastructure that will be required to facilitate the use of the digital yuan.
The accepted narrative goes like this: the U.S. emerged as the face of global power after the Bretton Woods economic system was established among the United States, Canada, Western Europe, Australia, and Japan following the 1944 Bretton Woods agreement. Fast forward to the present, 2022, and China is now the world’s largest trading partner; however, the current financial structure undermines how vital China is to the global economy (in my opinion, its rise to importance is also by design). I want to make this clear: my perspective on China is not to be confused with “America first” neocons like Tim Morrison—a senior fellow at the Hudson Institute and former national security deputy assistant to Donald Trump—who warned that China’s patents relating to its digital yuan speak to China’s ability “to effectively impose its system on the rest of the world…[and] it doesn’t end the dollar overnight, but [they’re] beginning to build an alternative.”
That is not where I am coming from and I think Tim Morrison is a complete hypocrite for having a problem with China imposing a certain system when he doesn’t seem to have a problem with the system the U.S. has been imposing all over the world. It cuts both ways and his inability (or refusal) to see and articulate that is probably why he has such a high position at the Hudson Institute.
Digital Yuan Patents, Blockchain, and LIBOR
The digital yuan offers barcode payments, tap-and-go transactions, offline payment options, and facial recognition authentication. I imagine the “offline payment” option is useful for areas with unreliable internet connection (especially in the African countries where China is present). Bansal and Singh emphasized that peer-to-peer (p2p) is a transformative option to improve cross-border payments. The digital yuan is not based on blockchain technology, but it is interoperable with currencies that use blockchain and blockchain can be used to manage the digital currency. I do want to point out that in 2020, the government of Beijing released a 145-page blueprint called the Beijing Blockchain Innovation Development Action Plan of 2020–2022 for the purpose of making “China’s capital [Beijing] one of the first cities in the country to integrate blockchain technology into the city’s economic development.” A quote from this article on The Block sums it up best:
By 2022, Beijing will become an influential blockchain technology innovation center, application demonstration center, industrial development center, and innovative talent center, taking the lead in forming the ‘Beijing Plan’ for blockchain-enabled economic and social development.
The People’s Bank of China (PBoC) can actually issue inactive digital currency to financial institutions which can only be activated once said institution meets certain conditions set out by the bank—this is called programmable money. In the US, Christopher Giancarlo, the former head of the Commodity Futures Trading Commission or CFTC, started the Digital Dollar Foundation and in May 2020, they produced a paper called The Digital Dollar Project that’s also worth checking out.
Back to China—the digital yuan can facilitate cross-border payments through token exchange. Since other countries need to have the technology that enables them to accept such tokens, China is working on developing cross-border platforms and policies that facilitate this token exchange—which explains why the PBoC’s Digital Currency Research Institute has filed over 80 patents between 2017–2018 relating to digital currency. According to Financial Times the patents include:
Proposals related to the issuance and supply of a central bank digital currency, a system for interbank settlements that uses the currency, and the integration of digital currency wallets into existing retail bank accounts.
Most of the patent applications relate to integrating a digital currency system into the legacy banking infrastructure. Furthermore, upon reviewing several of the patents, Financial Times reported that China plans to algorithmically adjust supply of a CBDC based on triggers like loan interest rates. This caught my eye because of the United State’s (and other nations) recent move away from LIBOR (London Interbank Offered Rate)—which has been a key benchmark for setting interest rates on adjustable-rate loans, mortgages, and corporate debt—and transitioning to SOFR (Secured Overnight Financing Rate). Side note: I want to thank Aly Alexandra for bringing LIBOR to my attention. SOFR is based on data from observable transactions rather than estimated borrowing rates (like LIBOR)—which ties into the transition to a strictly digital economic system (“observable transactions” screams blockchain or decentralized ledger technology to me).
LIBOR is calculated for specific terms (up to one year) and the rates are calculated at the beginning of the term. On the other hand, SOFR has no terms and is calculated at the end of each trading day. To tie this back to China, the switch from determining interest rates based on a set estimated borrowing rate (LIBOR) to one calculated at the end of each trading day (SOFR) is probably the reason for China’s patents that relate to adjusting the supply of a CBDC based on changes to interest rates—this most likely means interest rates will be volatile moving forward and China is preparing for it.
PBoC and SWIFT + CIPS
Finance Gateway Information Services Co. is a joint venture between SWIFT and PBoC (People’s Bank of China) and the shareholders include the Payment and Clearing Association of China, SWIFT (holds 55% share), and CIPS (China’s SWIFT)—all supervised by PBoC. PBoC’s partnership with SWIFT suggests that China wants to popularize the digital yuan for cross-border payments.
Even if CBDC’s are designed differently all over the world, they will still be interoperable with other CBDC’s and with private cryptocurrencies, stable coins, or utility coins. China’s Belt and Road Initiative (BRI) focuses on economic development through investment in infrastructure from Asia and Europe to Africa (over seventy countries involved). Bansal and Singh proclaim that China using digital currency to settle cross-border transactions instead of the U.S. controlled financial system that currently exists—would immunize China’s business along the BRI (against U.S. sanctions). In addition, on pg.13, the authors also express that China has been accused of creating debt traps in countries along the BRI (like Djibouti, Kyrgyzstan, Laos, Maldives. Mongolia, Montenegro, Pakistan, and Tajikistan).
They go on to say that China could influence the indebted countries into adopting its digital yuan for bilateral transactions. Bansal and Singh also suggest that China can push these other countries to accumulate the digital yuan for bilateral transactions. Furthermore, it was implied that Chinese contractors in Africa can be paid directly in digital yuan instead of routing the money through foreign governments.
China’s UnionPay & Peter Thiel’s PayPal + Africa
UnionPay is a Chinese credit card company; in 2020, Union Pay International partnered with PayPal—which is partly founded by Peter Thiel (who is a U.S. National Security stooge and an overall questionable human being)—in order to expand China’s cross-border commerce. Anyway, UnionPay’s partnership with PayPal gives China an extensive network that can be used to promote its digital agenda.
On pg.15, Bansal and Singh note that China’s UnionPay card is accepted in over fifty countries in Africa—UnionPay International is also partnered with Interswitch East Africa (based in Kenya). Basically, since China already has an established network in Africa, they can use this advantage to promote the digital yuan in the continent—they can also make this infrastructure available for receiving remittances. If Peter Thiel is one of the founders of PayPal and he made his splash in the “data analytics” scene by scoring big contracts with the U.S. National Security agencies—how is it not clear that the people pulling the strings at the very top are actually all friends and business partners (even if they pretend like they are adversaries). It’s quite literally all (or mostly) a show. Thiel once said that PayPal was motivated by this belief: “you can find value not in real manufactured objects, but in the relations between human beings. PayPal was a way of moving money around the world with no restriction.” Sounds a lot like one of the “crypto bro” talking points about money that the government can't “censor”—but Thiel directly works with the government he claims censors. Odd.
Moreover, Thiel was also an early investor in Ripple (which is a company started by Jed McCaleb who started Mt. Gox until he sold it in 2011 and then started Ripple in 2012). I believe the first bitcoin exchange was Mt. Gox—please listen to this podcast on the We’ve Read the Documents channel to get an in depth breakdown on how the PayPal Mafia formed, who is a member, and what sort of influence they have today (it is worth a listen).
Back to China and the Carnegie Endowment paper:
Bansal and Singh believe that the actions China has taken are not necessarily isolationist, rather, they are an attempt to dethrone the dollar as a global financial system. I agree with this statement; however, like I previously stated, I think that the way China even got to the point where it was permitted to challenge the U.S. hegemony was no accident—it was by design through and through (I believe China was chosen). Which also means that the same people who have always been in control, will remain there. They will just be asserting their influence through different avenues and convincing certain people that they are on the winning side and others that they are on the losing side.
I don’t believe that morally intelligent people should engage in such games or paradigms based on the rules set by corrupt individuals who established those rules and boundaries (nor should they adopt their deceptive and “strategic” tactics). That’s just a general comment, though, not only related to China. The point is, Peter Thiel is obviously in business with China’s government and corporations, but he was also a huge advocate of Donald Trump who purported to be “tough on China”—how can both contradicting realities be true?
China’s Five Key Interventions to Internationalize the Currency
1.Cross-Border Interbank Payment (CIPS): China built CIPS to increase renminbi (RMB) convertibility across the globe and, according to Bansal and Singh, CIPS has been instrumental in the success of the Belt and Road Initiative (BRI).
2.IMF Special Drawing Rights: In 2016, RMB was added to the IMF’s Special Drawing Rights (SDR) basket. SDR is an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves. After the RMB was no longer deemed undervalued in 2015 (by the IMF), it became part of the SDR basket—consisting of the dollar, yen, pound, euro, and, as of 2016, the RMB.
3.Bilateral Currency Swap Deals: Since 2009, PBoC (People’s Bank of China) signed Bilateral Swap Agreements (BSA’s) with 41 nations. BSA is a swap line established between two central banks that allows China and its partners to conduct and settle cross-border trade and investments in RMB and their local currencies. As of right now, RMB accounts for 30% of global gross domestic product and the dollar accounts for 40%.
4.RMB-Dominated Oil Futures: China is the world’s largest importer of crude oil and in 2018, China created oil futures tradable in yuan in the Shanghai Futures Exchange. This gives global market participants a reason to use the yuan—also gives China pricing power for crude oil.
5.Belt and Road Initiative (BRI): The BRI is a vast network of infrastructure projects and economic zones spanning seventy countries across the globe—much of which is funded by the RMB (which has now expanded internationally). On pg.17, Bansal and Singh pointed out that China is increasing yuan use for cross-border trade; PBoC and China’s Construction Bank have issued yuan-denominated bonds and foreign currency bonds to help finance the BRI.
Dollar’s Demise?
At the end of 2020, the IMF reported that the dollar’s share of reserves held by central banks hit a twenty-five year low at 59% (it was 71% in 1999) — Bansal and Singh believe that this signals the U.S. hegemony over reserve currencies is decreasing (pg.18). They are of the belief that this can be attributed to the rest of the world’s effort to internationalize domestic currency in order to reduce the dollar’s influence over their payments systems.
Interestingly, China saw its foreign holdings of RMB assets increase to $1.16 trillion in 2020 from $669 billion in 2018. In 2015, Russia and China did 90% of their bilateral trade in dollars; conversely, in 2020, the figure dropped to 46%. This makes me wonder if Trump’s “tough on China” policy was meant to further drive China and Russia together as economic partners—Russia to get past sanctions and China to side step dependency on the U.S. financial system. Furthermore, the New Development Bank (formally the BRICS Development Bank) started to move away from the dollar (as of 2019) and now issues 50% of its loans in national or local currencies. In addition to that, the Shanghai Cooperation Organization (which includes China, Russia, and India) decided to conduct bilateral trade, investments, and issue bonds in their own national currencies (pg.19). In 2014, Russia created an alternative to SWIFT, called SPFS, because of geopolitical concerns. In addition to that, Russia started to integrate SPFS with China’s CIPS and UnionPay. This is similar to how the European nations started using INSTEX (an alternative to SWIFT) to conduct trade with Iran because Iran was cut off from SWIFT due to U.S. sanctions.
To Conclude:
It seems to me that China was chosen to take the throne in leading the next generation in the global economy. Personally, I don’t see this as a good or bad thing because regardless of which nation is the “face” of a very old and vast network of legacy institutions and multinational corporations, the same corrupt psychopaths will still be calling the shots. So, excuse me, if I’m not over the moon about the upcoming multipolar “Eurasian Century” set to replace the western hegemony because I do not care for either master. Don’t get me wrong, I understand why people are touched by China’s story because a lot of horrific things were done to China (from Commonwealth invasions and Opium Wars to Japan’s inhumane experiments on the Chinese people)—I see how people can admire the nation’s ability to rebuild.
However, a lot of these stories are misused by manipulative people, governments, and institutions to get actual well-meaning people to rally around a certain narrative in order to capture that energy, harness it, then direct it toward a path they see fit. This is done in every nation, no exceptions. The United States is probably the biggest proponent of this method—selling “American exceptionalism” to their citizenry and attempting to convince them that the country was founded on (fake) principles like freedom, liberty, and justice; when that is just simply not the truth (even by their own records of history). In this documentary, The Power of Nightmares, Adam Curtis offers some insight into the “neoconservative” movement he believes to have started by an obscure political philosopher named Leo Strauss, a professor at the University of Chicago. Paul Wolfowitz and Francis Fukuyama are just two of the notable figures who studied under Strauss.
Side note: The Power of Nightmares, overall, paints an utterly flawed and incomplete picture of the rise of “radical islam” and if anyone is actually interested in that topic, specifically, I suggest James Corbett’s False Flags: The Secret History of Al Qaeda part one and part two).
According to the documentary, Leo Strauss was unhappy with the degeneracy of what he called the liberal establishment and wanted to undo the glorification of moral bankruptcy and establish rule of law. Strauss believed that the way to do this was for politicians to assert:
Powerful and inspiring myths everyone could believe in; they might not be true, but they were necessary illusions. One of these was religion, the other was the myth of the nation. And in America, that was the idea that the country had a unique destiny to battle against the forces of evil throughout the world.
Leo Strauss wanted to simplify the conflict between good and evil (to the American people) in a way that would be immediately intelligible to everyone (his favorite show was Gunsmoke). Strauss also believed that in public, the “elites” had an obligation to promote the myths necessary to rescue America from decay, but in private, they didn’t have to believe in those stories. Ultimately, Strauss maintained that the liberal belief in “individual freedom” was what caused chaos because it undermined the shared moral framework which held society together. Strauss and his followers wanted to unite Americans by giving them a shared purpose; so, they set out to create the “myth of America” as a unique nation whose destiny was to battle against evil and spread democracy all over the world. There is much more to say about Leo Strauss and his sophist band of thugs, but I will reserve that for another day—for this post, I just wanted to briefly explain some of the fundamental principles and tactics taught by Leo Strauss.
To tie this back to China, I have no doubt that they, too, have figures like Leo Strauss in China (or in any country) because people are the same no matter where you go and their motivations are really not that different. They may be different culturally, but the nature of human beings is not dictated by the hemisphere upon which they live (corruption is not only confined within certain borders). What I am trying to say is this: just because China (or other non-western nations) seem to be posturing as some sort of opposition to western hegemony, it does not mean that they, too, are not controlled by the same demons who, now, just want people to buy into another story. This doesn’t mean that China is evil—it just means that there is no need to get wrapped up in their narrative and take it at face value—similar to the way U.S. “patriots” get wrapped up in the American exceptionalism and constitutional conservatism narrative (this does not excuse the “liberals” either, by the way—they are problematic, too).
Also: if you want to understand the often ignored version of American history, the Civil War, and the illegitimate nature of the U.S. Constitution, please watch this conversation Aly and I had with Legalman a few weeks ago.
Anyway, the reason I brought up Leo Strauss—and his belief that it’s ok to perpetuate a myth about America to the citizens of the country because the only way to unite them is by rallying them around a shared narrative—is because that is one of the clearest examples of mass manipulation.
However, like I said, this type of psychological operation does not only happen in America and we must stay vigilant because we don’t want to get caught up in controlled counter-narratives that only appear to be in “opposition” to the established lies—the overlords are crafty and known to fund all sides.
Peace and blessings.
