Credit: David McBee and Nbsp
If money is politics at a time of changing geopolitical sands, digital currencies of the central bank (CBDC) and the underlying infrastructure will be a crucial chip in competition between China and the West, says Brunello Rosa, head of the Roubini and Rosa Associate consultation company, in its book, the consulting company Intelligent money: how digital currencies will shape the new world order. Former economist of the Bank of England which teaches at the University of LSE and Bocconi and advises a British parliamentary committee on CBDC, the Italian thinker has an inner vision of the way in which technology shapes the monetary order emerge. In an exclusive interview with Global financeAlex Katsomitros, Rosa maintains that the Chinese digital renminbi is part of a stratagem to undermine the Western monetary system in tandem with its belt and road initiative, while the wars of the digital dollar prohibition of President Trump on confidentiality and the “ Programmability ”, the capacity of CBDC issuers of the CBDC to automatically restore the conditions UNITED STATES.
Why is a technical subject such that CBDC is so politicized?
They are indeed a technical adjustment on the responsibility side of the assessments of central banks. But there is also a geopolitical dimension, because this is how China can internationalize the renminbi. There are also concerns about privacy, an intrinsically political question. Finally, flags, national hymns and currencies are symbols of sovereignty. Once you have started to modify them, politicians want to have a say.
Are concerns about confidentiality and programmability justified?
The ability to follow transactions arouses concerns, but banks and credit card issuers are already doing so. Central banks offer more solid confidentiality guarantees. An authoritarian government could use this information against you. But the problem is the authoritarian state, not the instrument. They could abuse any technology. This concern is therefore not entirely justified. In addition, there are ways to minimize the problem, but does not completely eliminate it. It is different with programmability. People believe that central governments and banks will control how they will spend money.
You want to buy cigarettes and the state prohibits this. But the probability is low. Programmability allows money to do things that he could not do before due to integrated intelligent contracts. This feature could be used for good or bad purposes. Think of nuclear energy: you can have unlimited energy or a nuclear bomb. It is not the technology that counts, it is the way it is used.
The new American administration supports cryptocurrencies, but President Trump has prohibited the digital dollar. What is your policy on American policy?
The United States has a different tradition from that of China, so instead of a CBDC supported by the State, it has chosen a solution from the private sector: Stablecoins. They will simply regulate stablecoins and other cryptos. Finally, they will realize, perhaps after a crisis, that the system only works well with a CBDC as the basis of confidence. Without this, the environment of digital assets is intrinsically unstable.
Some people think that stablecoins could help the dollar remain the global reserve currency in the digital age. Do you agree?
I do. China has made its movement with a solution supported by the state which will facilitate the international use of the renminbi. The United States has decided to go the other way with Stablecoins. Even with the closer definition of stablecoins, transmitters will have to keep a large amount of liquid assets to guarantee ankle one by one with the dollar. These assets denominated in dollars are almost certainly the American treasury bills, which contributes to supporting demand for them despite a reduction in confidence in American assets in the midst of a trade war. The response to the United States is an intelligent decision, but their success depends on the importance of these stables in the world.
Would a retail CBDC represent a threat to commercial banks?
People fear that this will lead to disintermediation and to ask: why should I keep my money in a commercial bank deposit account, when I can keep it in a safer central bank account? There is only a limited risk because in a two -level system, the central bank would have liabilities, but commercial banks would retain customer relations, issuing the portfolios.
You can introduce – and Europeans want to do so – holding limits to the quantity of CBDC held by individuals. Finally, the banks will continue to extend the credit, not central banks. If you want a loan, you will always have to go to the bank. But banks will have to adapt to the new reality. Making money out of payments to people and businesses may not be possible. They must find new sources of income. For example, they can emit their own stablecoins or token their deposits and add features to their responsibilities.
What is the link between smart money and the world’s world race?
It is the same geopolitical dimension at stake when we talk about rare earths, prices, seizure of the territory, Greenland or Taiwan. China launched the Belt and Road Initiative, its sister project called Digital Silk Road, its CBDC and also Agenda 2025. There is therefore a continuum of projects bringing China to the next level of technological development. Once you start to build infrastructure for bridges and ports, you also create digital infrastructure: payment centers, data centers, 5G, telecommunications satellites, electronic government in various countries. Part of this is the payment system where the digital renminbi will run. All these things are closely linked.
Is dis-dating their end of the game?
After the Second World War, to transform the dollar into a global reserve currency, the United States decided to execute a current account deficit, which is worried about the current administration. Well, they wanted it first! They also agreed to have an open capital account, which means that they had to send dollars abroad to pay imported goods, but also be converted to other currencies. China does not want to do this. China wants to remain an economy led by export, and not an economy led by consumption like the United States, and therefore it has a current account surplus, which means that more renminbi presents itself in the country it does not come out. They don’t want to open their capital account. This would cause a huge outing of money because people fear that the government can grasp their money. So how can the renminbi become a reserve currency? Well, technology is the answer. If China builds the rails on which digital payments are executed, it does not matter that it has a current account surplus. What matters is that builds and controls this infrastructure, and it is China. It is the means for China to establish a reserve currency in its sphere of influence.
Are there risks for China?
If China does not reach these objectives peacefully, it can become more aggressive geopolitically. Instead of focusing on economic prosperity, he can enter into foreign adventures, which she avoided in the last 100, if not 1,000 years. China has never been expansionist. They could be tempted to do it, but I don’t see it as the most likely scenario.
Can the West catch up, taking into account China’s head start at 10?
It’s difficult. If you are 10 years late, you cannot catch up in 10 months. But the EU has shown that if you put your mind, you can get remarkable results relatively quickly. They started working there around 2018. They are now finishing their investigation and preparation and implementation phase in October, which could lead to a launch in 2027. You cannot catch up, because while waiting for China. But you can partially recover the lost ground, if you are consistent. For the United States, the problem is the presidential ban. It will be difficult to catch up because they will lose four more years. They bet that private solutions will do the work and a public public active will not be necessary. It is not a safe bet. The United States is expected to adopt a public public asset for digital wallets from its citizens.
What will be the differences between liberal and authoritarian CBDCs?
Technology offers the transmitter a lot of control. Potentially, you can follow or at least reconstruct ex post each transaction, which could be a significant control tool. The challenge is to have good governance that makes the system less omnipresent.
You cannot provide complete anonymity; Only cash guarantees this. But you can make sure that the identity of people cannot be discovered without a judicial mandate and that they can spend money without interference from the government. Programmability will only be used when you receive money so that governments can implement targeted budgetary policies focused on specific groups or even individuals, but there will be no control over how money is spent. Authoritarian CBDC could be used as a surveillance instruments to prevent people from doing what they want. But it is the country’s leadership, not technology, which counts. Authoritarian regimes will choose authoritarian solutions.
Doesn’t that lead to a fragmented global monetary system?
The system must be interoperable, which means that the solutions adopted by individual countries must be integrated internationally. Otherwise, instead of having a homogeneous monetary system by which money can circulate instantly, we will have a more Balkanized system where money encounters more obstacles. Countries must cooperate and find common protocols, but in the current fragmented geopolitical environment, this could be a challenge.
A global CBDC, like a digital version of Keynes’s Bancor, a viable solution?
Keynes proposed Bancor to Bretton Woods, knowing that history could repeat itself with protectionism, commercial wars, authoritarian regimes and possibly war. He thought that the reduction of commercial imbalances was important to avoid a repetition of history. The IMF was created to do this and ensure that no country could exploit the exorbitant privilege that a reserve currency offers-first in Great Britain, then in the United States. But he lost the argument against Harry Dexter White, the American envoy, on the grounds that the dollar could serve as a reserve currency. Could we see a digital bench? As it was not accepted at the time, it is unlikely that it will be accepted now. Which central bank will emit and manage this currency? Theoretically speaking, perhaps the IMF. But there is no consensus to make it an international currency issuer. The Bretton Woods institutions are attacked, even from the United States where it is based. So I don’t see a digital bench emerging anytime soon. If anything, we are going in the opposite direction: a plethora of private stables which can mark the return of the “free bank”: the institutions issued their own responsibilities. It is the risk that the bank for international establishments has identified and why they do not like stablecoins.