How Bitcoin May Eat CBDCs
@notgeldThere is a widespread tendency to think that CBDC may worsen consumers' and users' privacy. There is nothing to worry about because it is already bad. Running payment systems and tax reporting software are already insanely non-private. For example, information about each supermarket purchase in Russia is being collected in special centers, and even if a user wants to pay with cash on delivery, shops and services normally require to put an email to send a "digital invoice duplicate" for "consumer protection". In Germany Deutsche Post can retrieve buyers' private data and send physical mail if payment for stamps for some reason fails. Private data cost 3 EUR for them, and a stamp costs 0.85 EUR for you. You pay both costs eventually. Cash option remains in many places, however, haven't you had such a situation when a merchant asks you to pay with a card because there is no change for your bill?
In "Why CBDCs May Fail" I've collected some arguments and discussed specific facts about revived interest in digital currencies in 2022. There, I drew parallels between Hitler's and Putin's economic systems and trade agreements which makes sense because both are dictators with genocidal ideologies. However, the end of 2022 provided additional inputs which lead to valuable observations about CBDCs. This is interesting that the year started with the Asian free trade block entering into force and ended with Xi visiting the Persian gulf and securing oil trade in the (digital) renminbi (not for the first time though). Bitcoiners tend to think that their privacy is at stake while having even more private alternatives than fiat plastic cards. They probably miss the collapse of the petrodollar system.
Bi-directional Trade Agreements
Zoltan Pozsar in "War and Commodity Encumbrance" gave quotes from Xi's speech at China-GCC Summit (full text):
The two sides could explore setting up a China-GCC forum on industrial and investment cooperation, strengthen investment cooperation on digital economy and green development, and build a working mechanism on investment and economic cooperation. The two sides could start currency swap cooperation, deepen digital currency cooperation and advance the m-CBDC Bridge project.
The project mBridge was initiated by the Bank of International Settlements which has already conducted a dozen of various experiments with exotic codenames before China entered the scene. It might be not an exaggeration to say that BIS is obsessed with experimenting with tokens and CBDCs because it will fulfill its original existential purpose via the intermediation and settlement of a gazzilion of digital assets. Zoltal gives nice examples of bi-directional trades and swaps avoiding settlement in dollar currency conducted nowadays by Russia and China.
Most of the world's CBDC projects are on the brink of failure. Even Chinese officials talk about problems. If we assume that China is such a special kind of economic system, it becomes pretty obvious why in Nigeria people do not use CBDC wallets despite harsh measures undertaken against physical cash. Nigerians do not like physical cash either since the economy experiences double-digit inflation. Potentially low adoption probably can't stop the central bank from issuing "wholesale" digital currency or "retail" currency which may fail among regular citizens but still allow cross-border payments outside the dollar system. The implementation of CBDC in a developing country is especially valuable for China and leads to exporting of central planning into weaker countries unless they have more commodities and more goods to "back" their digital currencies.
Case For Private Dollar
CCP sets an interesting dynamic: according to Zoltan's analysis, it gets cheaper commodities because the West effectively implemented a sanction tax on using the dollar, and it gets new markets for finished goods with more added value. The West may do nothing and just look at how dollars are being used less and less in world trade while experiencing (hyper-?) inflation due to a huge mass of unbacked paper returning into US and EU economies.
The hyperinflation event may arise from the crisis of trust but now it is not apparent. After all, is CCP a good candidate to be trusted? So the West may respond with some new technology to counteract the advancement of China and preserve dollar dominance. It may be enough for US agencies to keep an eye on USDC and USDT and other stablecoins but the next good measure for the dollar to preserve domination would be such a digital form that could deliver enough privacy for conducting business overseas and not engaging much with OFAC. A by-product of such development would be a total acceptance of the new tech inside the country because lack of privacy is practically the single property of CBDCs which meets strong push-back from various groups of activists.
In this context Bitcoin is already winning: some sort of crisis of trust in the dollar/euro has happened. Millions of people in a matter of months found themselves getting cut off from international payment systems. A crackdown on dollar stable coins will finish the transition for them to trustless decentralized currencies. And Bitcoin ecosystem has some developments around privacy on the way.
Value Anchor
CBDCs swaps are a nice idea for dictators and cartels. However, usually, autocrats tend not to trust each other. International settlement for CBDCs has some serious issues in its core rooting in the value as such. What is the legit price for a digital token? Who knows it? Who knows how many tokens were ever issued by the counterparty? We meet here the problem of trust but let's assume it was solved in some way. Bilateral trade agreements worked well for Nazis only for some time. They can't replace efficient markets and Xi understands that.
Zoltan reminds us that before the way to digital petroyuan became evident, China made the renminbi convertible to gold on the Shanghai and Hong Kong Gold Exchanges, respectively (2016 and 2017). Russian Central bank and PBOC has been buying gold for a long time and continuously increasing their gold reserves. This is how digital currencies meet real value which can not be arbitrarily inflated and also being priced outside of their closed markets.
At this point, petroyuan appears to be Hayekian money backed by a mix of commodities and export goods, however, is it really unstoppable? We can name those who can stop all transactions in petroyuan in any place in the world. However, what else asset do we know that could not be inflated arbitrarily and may be transmitted electronically?
Bitcoin demonstrates all properties to be a good candidate for global reserve currencies. What it does lack, is commodities and finished goods markets where things could be priced in BTC directly. Luckily we have a country now which could get a first-mover advantage over competitors (other countries) and attract bitcoins which may be further used for building things. It will start from a power station but who knows it might end with ports, roads, railroads, and factories.
