Could China’s e-Yuan Start an Economic Arms Race?

"Everything is immensely convenient" in China, said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics. "You pretty much only need these two apps to do just about anything. You walk into a restaurant, scan a code and order your food. You don't have to wait for a waiter. All the payments are automatic. It's quite extraordinary."

Such a shift in the way people use money in China happened not just because of new tech -- but because of old tech too. The new tech is smartphones and apps -- which people have in the U.S. and everyone. But here's the difference: The U.S. and developed world have old tech -- credit cards -- which everyone is used to using. And changing people’s habits is tough.

China did not have such a ubiquitous credit card infrastructure. So when payment apps popped up on smartphones -- it was an easier thing for people to accept and start using.

This makes it even easier for China’s central bank to develop and deploy its own state currency: the digital Yuan. They’ve been working on it for six years now. And when Facebook unveiled its plans for Libra -- China got even more inspired. Especially when governments began trying to block Libra -- China saw it could race ahead and win the digital currency race.

"They are definitely one of the most advanced central banks in the world in thinking about and moving forward on this issue," Chorzempa said.

China’s central bank is now reportedly preparing for the first pilot tests of its digital state-backed and state-funded currency -- which is pegged 1-1 to the Yuan. And what that means -- to be very clear for the crypto investors out there -- is that the new e-Yuan will not be for speculation. It will be tied and backed by the real Chinese Yuan, 1 to 1, rising and falling with the currency.

And another point I need to make -- again for my fellow crypto investors and enthusiasts -- is that the digital yuan will NOT have any of Bitcoin

"Actually, the term that the central bank officials in China have used is 'controllable anonymity,' which is one of the most Orwellian statements one could think about," Chorzempa said.

So should we be worried about our anonymity if we use Facebook’s Libra someday?

Well, lawmakers in the U.S. and abroad are trying to bring that up.

"Libra raises a lot of serious concerns, and those include around privacy, money laundering, consumer protection and financial stability," Federal Reserve Chair Jerome Powell told lawmakers last July. "Those are going to need to be thoroughly and publicly assessed and evaluated before this proceeds."

But assessing and evaluating takes time. And Facebook CEO Mark Zuckerberg doesn’t believe we have that time to give. In U.S. court hearings he keeps bringing up China vs. Libra and the currency race we’re apparently already in. 

"China is moving quickly to launch a similar idea in the coming months," Zuckerberg told a House committee in October. "If America doesn't innovate, our financial leadership is not guaranteed."

How can that be? Well, much of the world economy is tied to the U.S. dollar right now. But if China’s digital Yuan can process these gigantic transactions faster, cheaper, and better (because it’s all digital) -- then could the world economy shift to using yuan? It’s a scary thought. 

Princeton University historian Harold James, a leading researcher, and writer on digital currency, says Zuckerberg could be right.

"We're right at the edge of a kind of gigantic technical change," James said.

He goes on to mention that ‘digital currencies could make financial transactions cheaper, easier and more efficient. To the extent they catch on, though, they could also trigger an upheaval in the global financial system.’ 

We could witness this upheaval in this decade we just entered. One thing’s certain: the 2020s are in for 100x more changes than we saw in the last ten years.