The Chinese Front

China was testing its digital Yuan, also known as the Renminbi, by giving citizens test allowances to spend on a variety of products, including Chinese versions of Starbucks and McDonalds. This was the culmination of a series of efforts, as China now looks poised to finally throw off the dollar’s chokehold on the international market.

A digital currency isn’t all that foreign an idea in a world where we’re constantly surrounded by ‘plastic money’, or rather plastic representations of money such as credit and debit cards. This is still just a way to move real cash electronically though, and is not the same as a wholly digital currency. China’s attempt involves attaching currency value to computer code, essentially meaning that ‘minting’ new currency would be equivalent to mining a Bitcoin. Anti-counterfeit measures entail that only the People’s bank of China can mint the digital Yuan though, so perhaps it’s not all that similar to BTC at all.

But what of the volatility that tends to follow crypto currencies throughout their tenure in the market? Being tied directly to the traditional Yuan, which itself is heavily controlled by the state, means that China’s digital Yuan will always be valued exactly the same as its classical counterpart, deterring prospecting speculators looking to make a quick buck. Each unit of the digital Yuan would offset and cancel out a paper unit, and the transition from one to the other will itself undoubtedly see hefty regulations as the currency picks up traction as legal tender.

Another aspect of conventional crypto currency that China intends to forgo is anonymity. Where one of crypto currencies’ biggest appeals was how they could be used to make purchases and payments without government oversight, China’s digital Yuan is pegged to do just the opposite. With it’s introduction, the People’s Bank stands to gain even more insight into where their currency is being spent, and who’s spending it.

The people at the People’s Bank do seem aware of the concerns this would raise though, and Mu Changchun, the person in charge of the digital currency project at the Bank talked about how the central bank would limit the way it tracks individuals, referring to it as “controlled anonymity”.

Surveillance concerns are just one side though, and Beijing is trying to position it’s currency to capture international market share by being untethered from the global financial system, which is dominated by the US and their dollar. The Chinese are looking, no doubt, to overthrow or at the very least subvert the dollar’s control, at a time when even large banks are afraid of going against the greenback’s authority.

This provides a nice test environment for other currencies that find themselves suffering under the threat of US sanctions, as it currently puts itself forth as a means to ease the blow caused by these. Sanctions against Iran and North Korea have devastated their economies, and both are undoubtedly closely watching the rollout of the digital Yuan to see if it may offer them some relief.

The US, too, is closely watching, as any attempt to undermine the dollar’s supremacy is a direct threat to national security. China’s digital currency would forgo the SWIFT channels that all conventional banking flows through, preventing US oversight over those transactions. America’s Specially Designated Nationals and Blocked Persons List, which prevents certain

individuals around the world from using conventional banking channels, will also be undermined by the emergence of an alternate to the dollar. China itself has roughly 250 names on the list, which includes political figures and key players in the Communist Party of China.

China’s new digital currency is only the latest in a series of moves that have recently helped the superpower establish its dominance in the ever-growing Fintech sector in recent times. This is after tech giant Alibaba’s Jack Ma came under fire from Chinese regulators. The Alibaba head’s Fintech interest, Ant Group, was the subject of investigation from the Chinese state, and has now branched out of the Fintech domain and repurposed itself as a financial holdings company that is overseen by the state. While to some, this may seem like a blow to aspiring Fintech startups in China, the actuality is almost exactly the opposite.

China’s financial technologies market has been on the rise since the late 2000s, and has steadily lent itself to the state’s surveillance umbrella in that time. Despite Ant Group caving, the government’s inquiry into the giant’s internals has established the groundwork for proprietorship in the domain, and China’s Fintech sector stands to benefit from this. Indeed, the scope of Fintech in China has been getting the attention from the state that it needed, resulting in subsidies, tax incentives and more for companies within the sector. This is a stark contrast to things in the US, whose laws look archaic by comparison. The process by which American firms may establish their intellectual capital is currently both inexact and opaque, which has held prospective interests in the sector back to a degree. Meanwhile in the East, the Chinese population has rapidly adopted solutions like WeChat and Alipay, leading to a rise in e-retail and digital commerce in general. The present rendition of Wechat allows millions of Chinese citizens to conduct the majority of their daily transactions online, paying bills, settling payments, and making purchases ranging from groceries to financial instruments.

Russia’s move towards a more progressive economy

Meanwhile in Russia, The CBR (Central Bank of Russia) has put into action several amendments to existing federal regulations, as well as new ones entirely, to facilitate the growth of financial technologies, with special attention being paid to Blockchain based technologies. This has heavy duty implications for P2P commerce and the payment services domain, and it comes at a time when Russian Fintech initiatives have finally turned the corner and are starting to promise profits. Q4 2020 was the first time in four years that the sector as a whole reported profits, so it’s no surprise that Russia is now evaluating the prospects of someday introducing their own digital currency.

There is some degree of confusion as to the direction Russia’s central bank is looking to take with regards to crypto currencies and other emergent technologies. The intent is there to introduce a central bank operated currency in the near future, and yet Russians are still prohibited from using crypto to make payments. The CBR has historically had a conservative outlook towards technological advancements, and some of the most difficulty that players in their emergent technology sectors have faced recently have been due to them having to grapple with outdated legislature. The act “On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation”, also known as the DFA law, intends to amend this. With the law, the Russian Government formally acknowledges digital assets as “property”. This is a step in the right direction for a country that finds itself hamstrung by a lack of forward thinking legal frameworks within emergent domains.

Elvira Nabiullina, Governor of the Central Bank of Russia, recently spoke about the psyche behind Russia considering it’s own digital currency. Russia’s reserves are vast and varied, in an attempt to insulate the country against geopolitical movements that may threaten their economy. Russia has been the subject of US sanctions at many points in the past, and stands to benefit greatly from removing its commerce from global financial systems, the same way China does. Not only does this facilitate transactions from international parties, it helps Russia de-dollarize, effectively decreasing the impact American intrusion can have on the Russian economy.

Russia is currently looking to invest heavily in Blockchain based crowdfunding and P2P financing technologies as well. These include projects to procure funding through special investment platforms which link individuals with Russian companies that are sanctioned by the central bank. Other initiatives include Russian tech giant Yandex’s joint initiative with Sberbank, Yandex.Money, shifted hands and is now completely in the hands of Sberbank. Yandex is still on the rise, offering a plethora of other services including Yandex Plus, which allows users to trade on the Russian stock market and invest in bonds and Exchange Trade Funds. Yandex is also currently in the process of developing its own payment gateway, Yandex Pay, to compete with the likes of Apple Pay and Google Pay.

Payment gateways are a highly relevant and competitive domain within Russian markets. Due to the lack of internationally accepted services like Paypal, Russia has always looked to introduce its own gateways to counteract this dearth, leading to solutions like Mr. Pay. This has worked, to some degree, and 2020 saw over 60 percent of retail transactions being conducted without a physical exchange of cash. Russian payment processing solution Mir has grown quickly to become a viable competitor to Visa and Mastercard, or at least that’s what the numbers show. In reality, Mir’s exorbitantly high adoption rate has less to do with the provision of better services, and more to do with the government forcing adoption through hardline policymaking. Since backlash for the Russian annexation of Crimea led to both Visa and Mastercard blocking several banks from their services in 2015, Mir has been quickly brought into the limelight by Russian Premier Vladimir Putin. First made mandatory for government workers and pensioners, it was then pushed onto Russian entrepreneurs, with the government presently requiring all businesses earning in excess of 30 million Roubles to accept payments via Mir cards. This limit is set to be further decreased in July and fixed at 20 million Roubles. At present, Mir cards account for nearly 30 percent of all debit cards in circulation in Russia, an impressive figure considering the company only really started picking up traction in 2015.

With Russia set to unveil a prototype for its digital currency by the end of 2021, and China already testing out theirs on sample populations of over 100,000 people, it’s clear that the dollar’s hegemony surrounding global commerce stands to be broken sooner or later. The question still remains, how will the west respond, and at this stage, will any response really be enough to curb the emergence of futuristic technologies; technologies not dominated by America?