The Rise of Digital Currencies and Risks of China's Encroachment Into US Activities

With Bitcoin cresting a price point of $60,000 again — we’ve seen a renewed interest globally in both cryptocurrencies, stablecoins and CBDCs.

The difference between the three being that cryptocurrencies move with market pressures — allowing for price volatility — while stablecoins are typically pegged currencies that hold a consistent value.  CBDCs (Central Bank issued Digital Currencies), on the other hand present a whole new arena to consider beyond our current world of fiat spending, borrowing and lending.

Bitcoin’s move has coincided with the recent approval of a cryptocurrency ETF (Electronically traded Fund) and major interest from financial firms like JPMorgan — which were previously rather dismissive of the crypto market altogether.

The rise of Bitcoin has also led to major interest in altcoins, or the minor crypto market currencies that have values ranging from less than a penny to several thousand dollars. Most notably is the market interest in DOGE and SHIB, the latter seeing gains of over 1000% in the past month alone.

While the crypto market enjoys its moment in the sun, the Chinese have made major moves to restrict the mining (or creation of more bitcoin) and the use of cryptocurrencies altogether.

In its place — the Chinese are offering their own digital currency — the eCNY. This is significant, as Chinese push to normalize use of the eCNY, have seen billions in transactions completed, to date.

The eCNY can currently be used at over 1.5 million locations across China, and has seen massive growth with the CCP’s use of lotteries and communication platforms like WeChat (which has its own payment system, similar to PayPal), to disseminate the new digital currency.

The risks today come from the China’s push for the eCNY to be the currency of choice during the next winter Olympic cycle. As the eCNY can be used as a surveillance tool, easily coupled with China’s onerous Social Credit Scoring system.

China is already pressing companies like Visa and McDonald’s to accept the eCNY, which could have major long-term implications. Those most notably being China pushing for American companies to extend use of their digital currency within America and globally.

As China began with a use case for cross-border payments through the mCBDC initiative which has opened the doors for their broader imposition of its use.

The challenge will come full force during the 2022 winter Olympics, as China’s push on American companies is yet to be addressed by the Biden administration. At the same time, America faces a strange future with our own path to a CBDC, as Biden’s pick to head the OCC (Office of the Comptroller of Currency) has expressed major socialist leanings and is sending mixed messages between what she’s stated in the past on digital currencies, and the current ire she’s expressed for them publicly.

This leaves the future of an American CBDC or a response to China’s eCNY encroachment in limbo. It also sets a major challenge for Biden to tackle, as the world rapidly grows into one of cryptocurrency acceptance.