Be Ready⚠️ China New Plan "Currency Reset" “De-Dollarization” with a New Digital Currency - financialanalysis

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Monday, February 24, 2020

Be Ready⚠️ China New Plan "Currency Reset" “De-Dollarization” with a New Digital Currency

Earlier this week, we covered the Federal Reserve’s pursuit of a central bank digital currency (CBDC), based on the blockchain and dubbed “Fedcoin.”
It turns out that China is also pursuing its own version of a CBDC, and while the consequences of such a move for Americans would be very different than those of a Fedcoin, they have the potential to be even more dire. What’s more, Beijing could be even closer to implementation than the Fed is.
Vila Lehdonvirta, a Senior Research Fellow at Oxford, was quoted on Quartz explaining a few advantages (to China) of its version:
A CBDC could have several advantages from a central bank’s perspective. One is winning back more direct control over money supply, to use as a monetary policy lever… In a CBDC system, the central bank could bypass banks and influence consumers directly.
According to an article on Ledger Insights, one key difference between Fedcoin and China’s CBDC is that the latter isn’t likely to be based on blockchain technology. Therefore, it wouldn’t be a true cryptocurrency like the planned Fedcoin. Instead:
It will have a two-tier structure involving the central bank issuing the currency to banks or institutions, with these banks circulating the currency amongst their customers. And the digital cash will be 100% backed by central bank deposits from commercial banks and institutions.
The same article goes on to highlight that China has been pursuing their digital currency since 2014, and “there are 996 staff at the Digital Money Institute.”
With that kind of manpower, it’s no wonder that a recent Bloomberg piece revealed the “People’s Bank of China is ‘close’ to issuing its own cryptocurrency.”
The Bloomberg article doesn’t share a specific timeline, but Wang Xin at the People’s Bank of China offered a hint of clarification on Regulation Asia, stating:
A digital currency issued by the central bank can improve the efficiency of monetary policy, and help to optimise the payment system… We had an early start … but lots of work is needed to consolidate our lead.
No matter if China’s CBDC could be close or lots of work is still needed, they appear serious about implementing it. And even the possibility that this digital currency could soon exist should raise a red flag.
That’s because China’s effort to create a CBDC is really part of an overall strategy of “de-dollarization.”
Another way for China to put a dent in the U.S. dollar’s hegemony According to a recent 5-Minute Forecast from Agora Financial, “China’s central bank has filed more than 80 patents as part of the push to create a digital currency.”
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.”
Sure seems like China could be creating an alternative to the U.S. dollar for transactions. And this isn’t the first time they’ve pursued alternate economic channels for trade with that goal in mind.
Jim Rickards has even suggested that countries like China may be building toward a gold-backed digital currency, which would make their currency an even stronger competitor to the U.S. dollar, if it came to fruition.
Thankfully, according to Rickards, China hasn’t yet amassed enough gold to “reach strategic parity with the U.S. dollar,” so at this time they may be unable to implement a gold-backed digital currency.
But in spite of that, China appears to be closer to introducing a digital currency than we might think. According to Gal Luft and Anne Korin, authors of the book “De-Dollarization”:
First, it is already a de facto cashless society. The largest bank note in circulation is 100 yuan (about $15), making big cash transactions cumbersome. While cash is not practical, credit cards have never become mainstream in the country. This is why China has become the leading society in mobile payments.
Even though the ideal move might be to wait until they amass enough gold, who knows what China will do to dethrone the dollar?
And don’t forget about Russia and Saudi Arabia, which may join forces with China to “kill the dollar.” Even Sweden has recently started real-world testing of the world’s first CBDC (called the “e-krona”), which proves the idea is beginning to take off.
Bottom line, the U.S. dollar is being targeted by other nations, and CBDCs are more ammo in their arsenal. Whether countries like China are successful remains to be seen.
As the Dollar Weakens Gold Tends to Get Stronger
The U.S. dollar has maintained a hegemony as the global reserve currency since 1944.
In 2010, the United Nations conference on Trade and Development suggested it be replaced because of the instability of its value on the global market.
For various reasons, China, Russia, and other countries want to weaken and eventually dethrone the dollar to gain a foothold in global trade. Whether they succeed or not, it’s a good idea to hedge against a weakening dollar. china, digital currency, economy, us dollar February 21, 2020.Don’t Ignore This Troubling Trend: U.S. Dollar Losing Popularity.Central Banks Losing Confidence in the U.S. Dollar?
Whether you like to hear it or not, this is reality: the U.S. dollar is losing its popularity. This could be very bad for the value of the greenback in the coming years.
You see, central banks around the world hold a lot of American dollars.Recently, however, they have been reducing their exposure to the dollar. If you hold U.S. dollars and dollar-denominated assets, you shouldn’t ignore this phenomenon whatsoever. It could have dire consequences.
Consider this: according to the International Monetary Fund’s (IMF) Currency Composition of Official Foreign Exchange Reserves (COFER) data, in the fourth quarter of 2015, central banks allocated 65.7% of their allocated reserves to American dollars.In the third quarter of 2019, this figure was 61.8% Looking at the difference over the past few years, central banks have reduced their exposure toward the the greenback by about six percent.
This may not seem like a big difference, but in the grand scheme of things, it says there’s a loss of confidence in the U.S. dollar.
Here’s the thing: while their allocation to the American dollar has declined, the overall allocated reserves at central banks around the world have actually increased by about 47%!
Will Central Banks Continue to Buy More U.S. Dollars?
With this, you must ask: will central banks continue to reduce their exposure to the American dollar? It’s very possible.
Keep in mind, central banks are supposedly the wealth protectors of countries. Think of them as conservative investors who want stability in their currencies.
Sadly, as it stands, the fundamentals of the U.S. dollar don’t seem that great these days.
The U.S. government has been addicted to spending without remorse. It continues to incur huge budget deficits. In fiscal-year 2019, the U.S. government reported a budget deficit of close to $1.0 trillion.
Looking ahead, there is no sign of balanced budgets.
Know this: budget deficits lead to a higher national debt. Currently, the U.S. national debt stands at over $23.0 trillion, and it could go a lot higher in the coming years.
National debt isn’t necessarily a big problem in the near term, but in the long term it does damage to the currency.
With this in mind, will central banks prefer to hold the greenback in their reserves? It’s very unlikely.
Slow Decline at First, Panic Comes Later
Dear reader, the future of the U.S. dollar doesn’t look that bright.
Will we see an outright dollar collapse? I believe we won’t see an outright collapse as some predict. Instead, I think we will see a slow and gradual decline in value at first and massive panic later.
Why should you be bothered about all this?
If the value of the American dollar tumbles, it will have an immense impact across the board.
Let me leave you with some food for thought: global trade is primarily done in U.S. dollars. How will companies hedge their businesses from a falling dollar? Major commodities are also priced in American dollars; how will producers and end users be impacted?

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