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Category: Bullion Bulletin

Bullion Bulletin: Money’s new asymmetric cold war

Canada has joined Australia, the UK and the US in their diplomatic boycott of next February's Winter Olympics in Beijing, all of them alleging that Ch...

16 December 2021

Gary Mead

Canada has joined Australia, the UK and the US in their diplomatic boycott of next February’s Winter Olympics in Beijing, all of them alleging that China is guilty of human rights abuses against the minority Muslim Uyghur population. China has warned the US that it will “pay a price” for this snub. What might that ‘price’ be?

Sir Jeremy Fleming, director of the UK’s GCHQ, the government communications headquarters, an intelligence and security agency, gave a hint of it recently: the big fear is China’s development of its own digital currency, the e-yuan, which China is heavily promoting in advance of its roll-out at the February Games. China will do its best to encourage not just its own citizens but also foreign visitors to the Games to use the e-yuan.

Fleming, one of the UK’s most senior spies, said though digital currencies offer a “great opportunity” there are also dangers. “If wrongly implemented it gives a hostile state the ability to surveil transactions… it gives them the ability… to be able to exercise control over what is conducted on those digital currencies” he said in an interview with the FT.

But the genie is already out of the bottle. Governments dislike the loss of control over money that private cryptocurrencies (such as Bitcoin) might pose, but they recognise the advantages offered by their digital technology – and they are pledging to move into the digital currency space. Yet outside China, where 140 million individuals and businesses have already signed-up to use the e-yuan, there has been more talk than action on official digital currencies.

The US Federal Reserve promised in May this year it would publish a research paper on its plans for a digital currency; this has yet to appear. The European Central Bank (ECB) said in July this year it was investigating over the next two years its own digital euro project. The Bank of England said in November it will “launch a consultation” next year on a UK Central Bank Digital Currency (CBDC).

CBDCs offer many advantages to governments but almost none to private individuals. Yet CBDCs will eventually replace government-sanctioned cash everywhere, which will make like simpler for central banks and governments, at the cost of an inevitable loss of privacy for individuals. Every single transaction via a CBDC – which is just a digital version of fiat currency – can be tracked. The anonymity to be had from using cash will disappear. That’s the main reason cryptocurrencies were created – to give individuals the chance of standing outside official supervision and control.

Fleming is not alone. His spying peer, Richard Moore, head of MI6, has said that China is trying to exert a “web of authoritarian control” around the world by luring the unsuspecting into “data traps”.

This is a new Cold War. Unlike the old one, it’s trickier to know where one stands, as the battle is already asymmetric; uneven, unequal, imbalanced. A digitalising world is promising to change what’s defined as money into computer code that can be easily tracked. Money is power; so too is data. If China is looking to sweep up vast amounts of personal data from the ways in which people spend their e-yuans, so too could other nations once they have their own CBDCs. Where China leads, the rest of the world follows. China is gobbling up huge amounts of gold every year. Perhaps it knows something we are just starting to understand?

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