The Crown Crisis has already caused very great damage and caused great damage to our societies and our economy, the scale of which remains to be seen. We have seen its effects on productivity, unemployment, social cohesion and political separation. However, there is another very worrying trend that has accelerated under the cover of fear and confusion caused by the spread of the pandemic. Over the past few months, the cash war, which has been waged for almost a decade, has intensified dramatically.
In recent years, and as the war for cash escalates, we have become accustomed to listening to certain arguments or “reasons” about why we should all give up paper money and massively switch to an exclusively digital economy. These conversations were repeated over and over, in most Western countries and by countless institutional figures. “Money is used by terrorists, money launderers, and criminals,” perhaps the most frequently repeated, as it has been widely used in most discussions of the digital transition. Just a couple of years ago, Mario Draghi also used it to support the decision to refuse a banknote of 500 euros. We have not received any specific information or data on how many terrorists actually used this high-denomination banknote, but we know that many law-abiding citizens used it for preservation, like small business owners for their operational liquidity needs,
However, now the major crisis has led to the emergence of a completely new direction of anti-cash rhetoric and new arguments in favor of the digital economy. Even in the early stages of the pandemic, when essentially nothing was known about the virus itself or its transmission, the seeds of new fears were already sown by sensational media reports and threatening political and institutional figures. The insidious idea that “you can catch Covid through cash” may have been spread prematurely, but it still remained in the minds of most people. This, of course, is understandable, given the extremely high level of uncertainty and anxiety in society. The desire to eliminate potential threats was a natural instinct, as was the desire to regain at least some control over our lives after they suddenly found themselves in complete chaos after the global economic freeze.
Another factor that specifically helped move away from physical cash was absolutely practical. Given the blocking measures and the new “social distance” directives that have been applied worldwide, it has become difficult to use cash, even if you really wanted or did not have other means of transaction, as in the case of billions of people. , Due to the fact that physical stores were forced to close, and more and more online stores offer contactless delivery (either as an option or as a service requirement), the need for cash very quickly gave way to digital payments.
For most of us who have access to online banking, cards or other digital payment services, this did not cause any particular inconvenience, and we probably did not even think about it. However, for many of our fellow citizens this was a serious obstacle, which in some cases blocked their access to basic goods and basic necessities. Contrary to the bright promises of the digital economy, financial affordability and convenience, the fact remains that millions of people still do not have access to this brave new world. According to the World Bank, there are 2.5 billion people in the world who do not have a bank account, with a high concentration in developing countries. However, in the West, a very large part of the population does not have banking services and / or does not have access to digital solutions, while older people are also largely “blocked” from the digital economy. For all these millions of people, cash is the only way to save, implement and cover their basic needs.
Due to the fact that money is presented not only as a threat to society and national security, but also as a direct threat to health due to coronavirus, the desire to use digital alternatives has significantly increased in the last few months. Both international organizations and individual governments took an active part and encouraged this impetus, some of which made statements for public leadership, and others through strict adherence to direct rules and measures that do not leave citizens a real opportunity to make their own choices.
The CDC, in its official guide for retailers, recommended that they “encourage customers to use contactless payment methods,” while the Word Bank report emphasized the need for cashless payments for “social protection.” The UAE Central Bank called for the use of online banking and digital payments “as a measure to protect the health and safety of UAE residents,” and the Bank of England acknowledged that banknotes might contain “bacteria and viruses,” and recommended that people wash their hands after processing money. In March, a Reuters report showed that the US Federal Reserve quarantined the dollars it repatriated from Asia and the central bank of South Korea, while the Chinese government forced banks to sanitize their accounts and keep them in a safe for up to 14 days before than to put them into circulation.
The highlight, however, came in May, when the World Economic Forum published an article in its Global Agenda that strongly supported the massive adoption of digital payments for public health. In it, the authors argue that “contactless digital payments at points of sale, such as face recognition, quick response codes (QR) or near field communication (NFC), can reduce the likelihood of spreading the virus among others through cash exchange.” They also welcomed China’s efforts to digitalize payments and seem to see the country and its measures as an example to follow: “China’s path to providing digital payments should give some lessons to other countries that want to follow suit.” Since a number of Western governments can really “strive to follow their lead,” let’s take a closer look at this striking example and see what it actually entails.
Fiat money 2.0
The quest for digitalization in all aspects of the Chinese state, society and economy is not new and certainly preceded the advent of Covid-19. The country’s infamous “social rating system” was in the headlines years ago, and the government’s desire to use technology, the Internet and all kinds of digital systems to track the behavior and affiliation of its citizens has long attracted international criticism and widespread condemnation from human rights organizations, privacy advocates and supporters freedom of speech. However, now the state has been given an occasion to accelerate its efforts to massively introduce digital payments and refuse cash.
To a large extent, this task of digitizing payments was much easier in China, since digital payments there are already very widespread among the population. According to Bain consulting consulting, more than 80% of consumers have already used mobile payments in 2019, which is in sharp contrast to the United States, which has an acceptance rate of less than 10%. Thus, since the population has already adopted a new payment method, the new initiative also sought to dominate the means of payment. Thus, a new “digital yuan” was introduced. This new paper currency, which has been under development for more than 5 years, was released in April in four Chinese cities, and a national adoption plan will soon be adopted to eventually replace the physical legal tender.
This so-called digital currency electronic payment (DCEP) will be put into circulation through the four largest state-owned banks in China, and citizens will be able to receive and use it by downloading the electronic wallet application authorized by the People’s Bank of China (NBK), which will be associated with their bank account . At first glance, it works just like the old currency. It is issued and supported by the NBK, it is valued in the same way as physical banknotes, and thanks to a partnership with Alipay and WeChat Pay, which control 80% of the country’s payment market, it will be used to pay by someone and to pay for everything. In fact, some civil servants’ salaries and government subsidies are already paid in this new digital yuan, entering the electronic wallets of their intended recipients.
According to People’s Daily’s Chinese state-run media, the new currency is designed to streamline domestic transactions and trade, but will also facilitate and facilitate cross-border transactions. The meaning is obvious: this is another attempt to challenge the global dominance of the US dollar, after the Belt and Road initiative failed to really move the arrow, as the Chinese state hoped. The strategy of spending huge amounts of Chinese money abroad did provide some leverage over developing countries, but it did not reach the level of “overthrowing” the dollar and internationalizing the renminbi. Perhaps this initiative will be better, especially since now it has the advantage of a “pioneer”.
Access to this “digital signature” is primarily extremely important, and the launch time of the currency was not a coincidence. The development and deployment plan was significantly accelerated after Facebook announced the Libra, as in the Chinese state there would be no private technology giant to defeat them. In fact, the digital yuan is a lot like Libra. Most importantly, none of them is a cryptocurrency that is decentralized in its design and allows peer-to-peer transactions without the need for an intermediary or a third party. In this case, the issuer is a third party, and all transactions go through a very centralized system that controls and has access to all data. Another discrepancy just a few years ago, the Chinese government banned initial coin offerings and placed a heavy burden on cryptocurrencies and crypto-investors, which made working in the country very difficult, thus removing the threat of potential competition from the private sector and clearing the way for its own digital coin.
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In the next second part, we will take a closer look at the broader implications of this digital transition and look at the implications of this shift as it spreads to the West.