In today’s Money Morning…E-yuan rollout reinforces China’s lead…the right people for the right job…and more…
Yesterday I walked through some of the pros and cons of the mammoth Coinbase Global Inc [NASDAQ:COIN] listing. An event that has already paved the way for a massive surge in crypto trading.
And while it is easy to justify all this enthusiasm thanks to Coinbase, I believe there are far bigger reasons to be bullish about crypto right now. Because while markets may be honed in on exchanges, the real shake-up looks to be coming from regulators and central banks.
Two areas of traditional finance that, at least in the US, are being forced to adapt.
What I mean by this is that cryptos are slowly changing the monetary landscape. Proving that digital currencies are almost certainly the future of money.
At least, to some degree.
The only thing that matters is how far they will go, and how long will it take?
Because as we’re already seeing, the West is losing in the race to digital currency supremacy. With both China and Japan already well underway with testing.
Meaning economies like the US and Australia are already on the back foot. And unless we start making progress soon, we may quickly fall behind.
E-yuan rollout reinforces China’s lead
See, while most of the mainstream media was focused on Coinbase, China has stealthily been making progress on its central bank digital currency (CBDC): the e-yuan.
Ramping up testing of their government backed digital currency to six new regions. Including the highly populous Shanghai.
A gradual ramp-up that has been ongoing since late 2019.
And with testing of cross-border capabilities — in Hong Kong — earlier this month, it is clear that China aims to make the e-yuan a global phenomenon. A clear threat to the US dollar’s status as the world’s favoured reserve currency.
But China isn’t the only one making headway on CBDCs.
Japan too has launched testing of its own digital currency. Starting a one-year digital yen trial that will assess the feasibility of this new, digital money.
A clear tell that the central bank doesn’t want to fall behind in this financial arms race.
Because as Stanford and Harvard academic/historian Niall Ferguson comments:
‘Allen Farrington argues that Bitcoin is to the system of fiat currencies centered around the dollar what medieval Venice once was to the remnants of the western Roman Empire, as superior an economic operating system as commercial capitalism was to feudalism.
‘Are we therefore heading for a collision between the old money and the new? Perhaps.
‘As we approach the end of the first 100 days of Joe Biden’s presidency, I am tempted to paraphrase his former boss’s jab at Mitt Romney back in 2012: “The twentieth century is calling to ask for its economic policy back.” There is something very old-school about the Biden administration.’
For the most part, I certainly agree with this assessment. With the US — and indeed most of the Western world — lagging well behind on the CBDC front. And indeed, cryptos as a whole.
But that doesn’t mean that they are unaware of the stakes either…
The right people for the right job
In recent months we’ve already seen Jerome Powell attempt to address the topic of a digital dollar. Having once again been asked about it on the US version of 60 Minutes last Sunday.
But, if viewers were hoping for some new insight they would have been sorely disappointed. With Powell simply regurgitating the same ‘looking into it’ mantra that he has issued in the past.
A response that is hard to gauge in terms of its genuineness.
Which is similar to our own RBA. Having only confirmed it is exploring the possibility of a CBDC with the help of CBA, NAB, Perpetual, and ConsenSys.
That was back in November though, with scant news on any developments since.
Which is a little worrying considering how much further ahead the likes of China and Japan are.
However, back in the US, there are things in motion, which hint at the possibility of a more welcoming approach to digital currencies and blockchain as a whole.
For starters, the US Senate confirmed its new Chair for the Securities and Exchange Commission (SEC) on Wednesday. Placing former Goldman Sachs Banker Gary Gensler into the role. A name that you’re probably unfamiliar with.
Here’s the thing though, Gensler isn’t just a banker, he’s a crypto professor. Having put together, and taught, a blockchain course at MIT.
Someone who is well aware of the crypto space, and has previously concluded that bitcoin doesn’t need to be regulated as a security. Which is great news for crypto investors, albeit with the caveat that Gensler is more than happy to go after other coins or tokens if he sees fit.
However, beyond this, Hester Peirce — an SEC commissioner — is also pushing a crypto agenda within the regulatory body. Having recently updated her proposal known as ‘Safe Harbor’; a framework that would give crypto and network developers a three-year grace period to be exempt from most SEC oversight.
The idea is that in doing so, these new projects can flourish and develop without unnecessary red tape. And then, once they’re established, can be brought back into the fold for future oversight.
Essentially promoting short-term innovation, whilst trying to limit long-term risks.
Two indications that perhaps the US’ regulators will be more open to digital currencies as a whole. Which is extremely pertinent if the West has any hopes of catching up to China in particular.
Because love it or hate it, the future of money is coming no matter what.
And the best thing any of us can do is prepare for it…
Tune in next week for more info on the future of money, and beyond.
Editor, Money Morning
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