It would appear that the next point of contention between China and the US is going to be digital currencies. For years, the US has been the global economic powerhouse with the US dollar as its main weapon in establishing dominance in various areas. However, the deployment of China’s central bank digital currency could challenge the dominance of the USD in global trade. At least that is what one former Trump advisor believes.
In a recent op-ed, Tim Morrison, a former advisor to Trump, called on the US to take action on China’s looming digital currency. However, he is not the only one alarmed over digital currencies. Steve Mnuchin recently referred to digital currencies as a national security threat. Morrison agreed with Mnuchin’s characterization of digital currencies. However, he called on the US to innovate if it wanted to avoid losing to China in this digital currency war. According to him, the global economic dominance of the US economy was due to the use of the USD as a global reserve currency. If that were to change, the US Military would be very hard hit, according to him.
China’s Goal
According to Morrison, one of the ways the US imposes its authority on other nations is via sanctions. He noted that most of those nations under sanctions were allies of China. As a result, China was looking for ways to avoid the USD in its interactions with these nations.
China has a goal of becoming a digital economy that is not reliant on physical cash. It is already well on its way to achieving this goal via digital payment platforms such as AliPay and WeChat. This has enabled the ruling communist party to increase its control over the population.
By using digital payment platforms, the communist party gains a lot of insight into the population. According to Morrison, this could enable China to weaponize this control as punishment to its opponents in Hong Kong and other places.
Morrison noted that China’s Belt and Road initiative, which entails China building ports across the world, is helping to widen its global reach. According to him, when China makes payments for these projects using its digital currency, it will be able to eliminate existing hindrances in the global payment system. Essentially, China will be able to create a parallel global payment system.
US Inaction Could Push Innovation Abroad
According to Morrison, inaction in the US when it comes to digital currencies could help to push innovation abroad. He noted that major economies such as the EU and China were already working on their digital currencies. If Washington did not respond, it would be left out.
Morrison thus wants the US to innovate in the digital currency sector. This is not simply an attempt to battle with China but to preserve the dominance of the USD in global trade. He insists that the US should not compete with a digital Yuan but a leader when it comes to central bank digital currencies.
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