It is tempting to think that digital renminbi (yuan) is Beijing’s answer to Facebook Libra.(1) Well, think again. Libra is antithetical to state control. Digital renminbi is part and parcel of state control. For Beijing, tightening state control is practically the only option left to manage economic decline.(2) Indeed, China’s GDP has been trending downward for a decade, not to mention its Himalayas of bad debts behind foggy statistics. Now, shadow banking funds worth 16 trillion renminbi remain unaccounted for.(3) 16T missing in action! No wonder digital renminbi sounds like a godsend to the control freak in Beijing.

Digital or not, renminbi is way behind USD which enjoys the lion’s share of central banks’ foreign reserves (60%) and forex trading (90%).(4) Beijing, always calculating, keeps as much USD as it can afford to. It listens to its Wall Street buddies who strongly advise against the “self-destructive nuclear option” of selling off its US Treasury bonds.(5)

As a matter of fact, renminbi is pegged to USD. This, however, isn’t evident to the uninformed behind the Great Firewall, even though they may already be aware of the tie between HKD and USD. Not to hurt national pride, the People’s Bank of China, of course, refrains from admitting openly that oftentimes it has to dance to the Federal Reserve’s tune.(6) 

The digitalization of renminbi nevertheless signals that Beijing is coming to terms with bifurcation, meaning that China is motivated to pursue its Eurasia agenda to the exclusion of America.(7) Yet, America controls global sea routes which are also global trade routes. Beijing has no good answer to that. Checkmate.

——Lingyang Jiang 

Footnotes:

(1) Why China's digital yuan has Facebook Libra envy - Decrypt

(2) China’s Economy Continues to Decline | Geopolitical Futures

(3) China Beige Book on Twitter: "Here, we corrected it for you: "#China's shadow banking saw 16T yuan in funds exit into areas we can't track, admitted the flummoxed regulator"" / Twitter

(4) Why the US Dollar Is the World Currency -- The Balance 

(5) China's 'self-destructive nuclear option' in trade war: Selling US Treasury bonds -- CNBC

(6) Fact check: No, China Has Not Cancelled Dollar Peg In Stock Exchange Transactions --The Logical Indian Crew

(7) How China, Russia and India will seek to shape Eurasia in their own distinct ways | South China Morning Post