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i-globalone · 4 years

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This is part of a series of op-eds previewing the World Economic Forum in Davos, Switzerland. CoinDesk will be on the ground in Davos from Jan. 20–24 chronicling all things crypto at the annual gathering of the world’s economic and political elite. Follow along by subscribing to our pop-up newsletter, CoinDesk Confidential: Davos.Michael J. Casey is the chief content officer of CoinDesk. The opinions here are his own.As the world’s most influential and self-entitled gather in Davos, Switzerland, for next week’s World Economic Forum, a predictable set of problems are on their minds: climate change, political polarization, trade tensions and cyber-attacks top their list of worries, according to the WEF’s just-released Global Risks Survey.Those are weighty issues. But if we look at them through the decentralization mindset encouraged by cryptocurrencies and blockchain technology, it’s hard not to conclude that elephants in rooms are being overlooked. It’s with those issues, the ones not being talked about, where the real important stuff lies.The disintermediating, fragmenting and decentralizing impact of the internet has made the 21st century’s political and economic structure profoundly different from the previous one. But the Baby Boomers who run our governments and companies still tend to apply 20th century assumptions about centralized money and power. They fail to see how our outdated political and economic institutions are out of touch with this new reality, and how that explains society’s ever-waning trust in them. It’s a myopia that also means they often fail to recognize, much less understand, the alternative decentralized models quietly emerging from the developers building cryptocurrency, blockchain and digital identity technologies.So, as I head to Davos with my CoinDesk colleagues for a week of reporting and speaking engagements, I want to contemplate some of the issues “Davos Man” might be missing.It’s worth remembering the people for whom these issues most matter are not those cocktail-sipping elites but regular Joes and Joans. This year may well mark the most divisive U.S. election in decades. If our bickering leaders aren’t focused on these big themes, where does that leave us in four years’ time? We need these issues on the ballot. China’s digital yuanChina is expected to launch a digital currency sometime this year. The question not being asked enough is: As this project grows – and likely many others from other countries and companies – what will it mean for the dollar-centric global economy and its multitudinous stakeholders?How will digital fiat currencies impact global trade and capital flows? Do they pose a competitive threat to the dollar and, by extension, to U.S. economic power? What would such a transformation mean for how the international community tackles the big-ticket issues Davos elites worry about: petrodollar investments in carbon-rich assets, for example, or global trade tensions?The digital yuan might seem like a superficial change, akin to a more advanced banknote or a state-run version of a mobile banking or payments app. But while China’s centrally managed approach to digital-currency technology is in some respects the antithesis of the decentralized model behind bitcoin, it is nonetheless a radical change.Two things matter: One, a digital fiat currency will circulate without banks managing the flow and, two, it is programmable, which makes it much more powerful than analog currency. Marc Andreessen says “software is eating the world.” Money-as-software might just devour it.A digital currency will enable the Chinese government to directly manage and monitor its users’ spending patterns. Putting aside the terrifying surveillance prospects behind this “panopticon” vision, this information-gathering power will greatly aid China in its international aspirations. Its economic response machine will be run by a far superior data-analytics system than anything employed by any other country.A “programmable” yuan will provide the missing payment component that hundreds of Chinese blockchain and smart-contract projects need. It will enable autonomous machines, micropayment infrastructure management systems, smart cities and other ideas the West will struggle to keep up with.As I’ve argued elsewhere, currency programmability, when interoperable with other countries’ fiat digital currencies, could also enable Chinese companies and their foreign partners to do a direct runaround of the dollar-based trade system.Currently, the yuan occupies an immaterial amount of cross-border trade and reserve asset holdings. But as this technology poses alternatives to the dollar and if China aggressively inserts its version into investment projects in Africa, for example, or into its 65-country Belt and Road Initiative, its international usage could grow rapidly.Recently, a Harvard-MIT simulation game found that digital fiat currencies could quash America’s capacity to impose sanctions on rogue states. But the issue goes wider: If non-dollar digital fiat lets anyone bypass the intermediating U.S. banks that U.S. regulators lean on to catch international criminals, why will anyone use banks for cross-border money movements at all? Where does that leave Wall Street, that engine of American economic power?Some people, including former U.S. Commodity Futures Trading Commission Chairman Chris Giancarlo, have recognized this threat to U.S. economic leadership. But Chinese digital currency dominance does not appear to be on many leaders’ radars – it’s certainly not featuring in the Democratic primary presidential debates.So, come on, Davos, let’s talk about it. Digital privacyTo be fair, privacy in the internet age, defined as the threat to our online personal data, will probably get a decent examination at Davos 2020. The Cambridge Analytica story, Edward Snowden’s unveiling of the NSA’s citizen-snooping system and the growing awareness that Silicon Valley behemoths such as Google are managing our lives, has put this issue front and center. It deserves to be.The problem is the structural factors behind this dangerous surveillance capitalism system are poorly understood.Most political reactions to the drumbeat of stories about data abuse by Facebook and Google amount to leaders tut-tutting at these companies, occasionally fining them and demanding they just stop being bad. Few realize that, essentially, they can’t stop being bad. These centralized entities, with their closed, non-interoperable “walled gardens” of data, have built their entire business models – and therefore their shareholders’ profit expectations – on surreptitiously and systematically extracting information about human lives.The other problem is the ad-hoc efforts to change these businesses’ behavior clashes with other demands placed upon them.Witness the contradiction in lawmakers’ critiques of the Facebook-founded Libra digital currency project. On the one hand, they demanded it protect users’ privacy but on the other they demanded it maintain all the monitoring necessary to prevent money laundering. Or look at how Facebook’s critics simultaneously demand its social media platform remove disturbing hate-speech content and that it also cease arbitrarily censoring and “de-platforming” users. Without understanding the problem, people can’t see how holding both of these positions is untenable. There are two approaches to this issue: a political one, such as an antitrust order to constrain the internet giants, or a technological one, in which social media platforms move to a decentralized structure of user control (one potentially where zero-knowledge proofs or other advanced forms of encryption enable verification without revealing identities).Let’s discuss these options, Davos. DisinformationYou thought fake news was a problem. You ain’t seen nothing yet.As Arif Khan writes in this pre-Davos opener for CoinDesk, fake news is going on steroids.With people such as Jordan Peele using clever stunts to highlight the problem, “deepfakes” – in which image manipulation technology is making it increasingly difficult for people to detect reality-altering changes to a digital video or image – are starting to get people’s attention.Yet, the full extent of how much society depends on the glue of trustworthy information is greatly underappreciated. The foundation of our democracy, of our legal system, of our business relationships and of everything else in between is at stake when the truth cannot be verified.How do we get ahead of this when artificial intelligence is progressing so rapidly and when information is no longer delivered to us through central filters?A solution will require a combination of tools like AI detection software, watermarking and blockchain-based tracking of digital media provenance.It also requires stakeholders at technology companies, media organizations and government bodies to jointly establish standards for those technologies so we can all agree on how we’ll re-establish the integrity of the information we rely on.This is an urgent problem, one tailor-made for a mountain-town gathering of money and power.Let’s look outside the bubble. Let’s become inquisitive. Let’s abandon rigid, outdated ways of thinking. Let’s say goodbye to know-it-all Davos Man, because clearly he doesn’t.Click the image to subscribe to our pop-up newsletter, CoinDesk Confidential: Davos.Disclosure Read More The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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silviajburke · 7 years

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Trump’s Currency War Battle with China Goes Live

This post Trump’s Currency War Battle with China Goes Live appeared first on Daily Reckoning.

Welcome to the currency wars. The Trump administration has entered a new low in relations with China. The change comes after the White House announced it is officially beginning to take aim at China’s economic strategy.

As friction between the world’s greatest economic powers deteriorates toward a high stakes currency war, the global economy could see spillover in financial, geopolitical and trade arenas.

The White House recently announced its plan to open up fresh investigations into Chinese trade and intellectual property practices. Now that China’s 100 days are up following Trump’s meeting with President Xi Jinping, the White House is no longer holding back on contempt for China.

President Trump campaigned on a hardline message on China, but seemingly backed off of rhetoric after entering office. That approach changed after his geopolitical targeting on Twitter that lashed out at the Chinese government and the lack of action toward North Korea.

I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet…

— Donald J. Trump (@realDonaldTrump) July 29, 2017

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Conditions on the Korean peninsula appear as though they will continue to escalate, and as they do the expectation is that it will drive a major wedge between the U.S and China. What that means is conditions are extremely ripe for a trade and currency war between the respective economic powers and their global trade operations.

All hope is not lost, yet. That is primarily because a significant amount of pressure has been placed on the North Korean regime. Seemingly, as goes the China-North Korean relationship so swings the pendulum of the Trump administration.

The latest round of United Nations Security Council sanctions that had unanimous votes from China, Russia and the United States shows progress. The achievement at the U.N was as much about North Korea as it was about the ability of the U.S and China signaling bi-lateral cooperation.

However, within the current system, regardless of ongoing negotiations, both governments appear destined for conflict. One can only imagine how, in such a nationalist based system, a currency war could detrimentally impact those at the lower end of the economic spectrum. That’s why those in government leadership — even those who might not be directly involved — have major reason to try and work together.

Here are the major issues and repercussions looming in the U.S-China divide:

Trade Wars

Currently, to do business in China foreign companies are required to disclose technology with the government and any foreign subsidiary involved with the agreement. This requirement is largely where issues of intellectual property, technology and trade problems have arisen.

Under the leadership of Trump’s appointed U.S. Trade Representative, Robert Lighthizer, the administration is expected to roll out a significant policy overhaul. For Lighthizer, a strong critic of free trade, this opportunity allows for the administration to bring penalty measures against China for “unreasonable or discriminatory and burdens U.S. commerce.” It is expected that the investigation details will be unrolled in the days and weeks ahead and signal that significant trade practices are due to change.

The reaction from any such moves will not be lost on the Chinese government. The move would negatively impact China’s technology sector. It would hit at the heart of hardware and software built and exported from the country – especially when much of that innovative science is largely brought into the country via foreign research and development.

In 2016 China imported an estimated $1.5 trillion from major U.S allies that include South Korea, Japan and Germany. To put that into perspective that’s more than China spends on energy imports to the country by over $50 billion dollars.

What’s even more compelling to the currency war factor is that it is a bipartisan supported issue. Upon the announcement of a trade inquiry into China, Senate Democratic leader Schumer (NY) along with Senators Wyden (OR) and Brown (OH) came out in direct support.

They cited that U.S industrial benchmarks including aircraft, automotive and semiconductors have ben caught in the crosshairs of Chinese policy infractions.

Jim Rickards is a former member of the Committee on Foreign Investment in the United States, or CFIUS. The committee is responsible for reducing the threat of foreign acquisitions to American companies that could present national security issues. CFIUS could become an even greater tool in pushing back Chinese investments in the U.S.

Rickards’ offers his analysis on the concern over trade wars noting, “Soon Trump will announce steel and aluminum tariffs. After that, more action will be taken to punish Chinese banks that help North Korea finance its weapons programs.”

“By November, the U.S. will label China a currency manipulator, which will start another review process, leading to still further sanctions. China will not take any of this lying down but will retaliate with its own sanctions, tariffs and bans on U.S. investment in China.”

The CFIUS expert and author of the book Currency Wars levels that, “This trade and currency war will shake markets and be a major headwind for world growth.”

Regional Conflict

The North Korean threat is one that continues to escalate and raise tensions around the Korean Peninsula. A nuclear threat and the missile capability that comes with it is something that could potentially bring about a very real shooting war or worse.

Whether there is credibility or not in the Chinese ability to dampen Korean aggression does not matter. The Trump administration has clearly perceived that no action from the Chinese will be met with U.S reaction.

As we saw in June with the Chinese restriction on fuel sales to the North, Beijing is willing and able to place pressure on North Korea, but the question remains – how far are they willing to go?

The issue extends beyond Washington politics as usual. Sen. Chuck Schumer recently sent a letter to the Trump administration offering that, “It is my assessment that China will not deter North Korea unless the United States exacts greater economic pressure on China.” The leading Democratic Senator from New York wrote to Trump, “The U.S. must send a clear message to China’s government.”

As the 19th National Congress of the Communist Party of China held in early fall approaches, Xi Jinping’s rule will either rise or fall based on regional conflict, economic standing and North Korea. The Congress is held twice every decade and is largely a rebalance of leadership and shuffling of party members.

It is largely expected that President Xi will be able to consolidate power, making him one of the most powerful rulers since Mao, and an opening to whether he stays beyond 2022.

If regional tensions blend with economic maneuvers from the Trump administration, a true test of power in the Asia-Pacific could begin. The start of such regional saber rattling could be seen preliminarily through currency wars but will not be isolated to tit-for-tat financial tactics.

China, Currency Wars and Special Drawing Rights

An article run by a Chinese state media outlet offered a grim, but very realistic measure of what policy leaders in the country are watching.

A major headline featured in the South China Morning Post in August:

Distractions over, Beijing revives its global currency ambitions

The article cited, “Central bank governor Zhou Xiaochuan argued publicly in 2009 that the world needed a new global monetary system to dethrone the dollar, with one solution to create a “super sovereign” currency based upon Special Drawing Rights, an accounting unit of the IMF.”

The potential for the SDR, or new world money, to supersede the dominance of the U.S dollar as the standard reserve currency is now underway.

The Chinese media outlet reported that since the country entered the SDR currency basket, “China has promoted the use of its currency in cross-border trade and investment, signed currency swap deals with dozens of central banks and created several offshore yuan markets, including in Hong Kong, Singapore and London.”

This move confirms that Chinese regional power ambitions will continue as it increases the use of the SDR in contrast to the dollar based system. While that change in itself is not a landmark shift toward currency war skirmishes, the fact that China continues to internationalize the SDR is noteworthy.

Economist Nomi Prins, a central banking expert and historian has noted that, “China’s power ambitions go well beyond the Special Drawing Rights (SDR). They include international diplomacy, sustainable energy dominance, and becoming a focal point for alliances through Europe, Russia and the ASEAN states.”

Beijing is deploying a range of tools in pursuit of its overall strategic plans for Asia. Its ability to pump money into investment funds, spread the SDR system into offshore market accounts and continued emphasis on business policies guided by Communist Party leadership will all be factors that could give way a potential currency war.

The Communist Party in China has maneuvered its financial position so that any negative speculation against the yuan can be deflected by its participation in the SDR.

2017 and Beyond

Trump is highly expected to issue a memo directing his trade representative to investigate Chinese intellectual property infringement against the U.S. The move would enact Section 301 of the Trade Act of 1974 and open up a significant downturn in relations.

All of this comes as the dollar continues to struggle after recently hitting a 15-month low. That is not good for a U.S economy facing mounting pressures from Asia.

At the signs of any weakness, capital markets tend to move fast. The evolving state of affairs between the U.S and China, especially when looking in the face of a currency war showdown, will be crucial to monitor.

The markets have not priced in the stark reality of a currency war between these two global powers. Soon, they may have no choice but to do just that.

Thanks for reading, Craig Wilson, @craig_wilson7 for the Daily Reckoning

The post Trump’s Currency War Battle with China Goes Live appeared first on Daily Reckoning.

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