Economy

Crypto Tipping Point: Is Digital Currency Too Big To Fail?

Now that central banks are opening to the idea of digital currencies, there may no turning back. But it comes with real risks, especially with regards to China's ambitions.

Representations of Bitcoin, Ethereum and Litecoin virtual currencies.
Marie Charrel

-Analysis-

PARIS — The Germans may be fiercely attached to good old-fashioned banknotes, but their finance minister, Olaf Scholz, is looking to the future: "A sovereign Europe needs innovative and competitive payment solutions." As such, it must be at the "forefront of the issue of digital central bank currencies and must actively push it forward," he said on April 16.

Two days earlier, the European Central Bank (ECB) presented an extensive survey of a panel of Europeans, most of whom said they were in favor of a digital euro. The ECB is expected to decide this summer whether or not to launch such a project.

The U.S. Federal Reserve, in the meantime, is cautious, but it is considering the possibility (together with the Massachusetts Institute of Technology). And on April 19, the Bank of England (BOE) and the British Treasury set up a working group on the issue.

The trend has been accelerated by the COVID-19 pandemic.

Then there's China, which has taken things to an entirely different level: The country has been experimenting with an "e-yuan" in four major cities for a year now!

In recent months, most central banks have intensified their work on digital currencies, drawing inspiration from the blockchain, the technology that allows transactions to be encrypted, recorded and secured, and that's behind the cryptocurrency Bitcoin, which was launched in 2008.

Spurring this interest is the decline of cash payments, a trend that's been accelerated by the COVID-19 pandemic. This shift is in line with the rise of Bitcoin and its little brothers (Ether, Ripple, Litecoin...), and the proliferation of private e-currency projects, such as Facebook's Diem, still in the works.

At first glance, these central bank digital currencies — known as "MNBCs' — will not change much in the daily life of individuals and companies, since the majority of payments are already dematerialized. And yet, the difference is fundamental: Most of the euros we hold today in our accounts and savings books are created by commercial banks through credit. MNBCs, on the other hand, would be the equivalent of banknotes printed directly by monetary institutions. Moreover, they could be held directly by the latter, without going through the banks. And that would make a big difference.

The European Central Bank in Frankfurt am Main — Photo : Boris Roessle​r

In emerging countries, where a part of the population does not have a bank account, these MNBCs could promote financial inclusion by allowing payments and transfers via cell phone. They could also facilitate cross-border transfers and make them less expensive. This would be particularly beneficial for immigrants sending money to their families in their countries of origin. Easier to trace than banknotes, they could also simplify the fight against fraud and money laundering.

But this is the crux of the matter: the question of anonymity and respect for private data. Bitcoin works thanks to thousands of computers networked together to validate transactions. It is not controlled by a centralized institution, like the ECB or the Fed. By launching their own e-money, monetary institutes would potentially have access, depending on their terms, to information about the financial flows and purchases of individuals. This worries the more libertarian advocates of decentralized cryptocurrencies.

On the contrary, an "e-euro" would "strengthen the confidentiality of digital payments," ECB Executive Board member Fabio Panetta assured the European Parliament on April 14. This is much more important than the growing number of private payment solutions, such as Apple Pay and Google Pay. Indeed, the ECB would take better care of our privacy than the American tech giants.

It could strengthen China's surveillance of citizens, knowing who pays what, where and when.

The same cannot, however, be said of the Central Bank of China (PBOC), which dreams of generalizing its digital yuan during 2022. As it is designed, the system will allow users to pay via a mobile application, through which the communist regime hopes to regain control over Alipay and WeChat Pay, the two private behemoths of Chinese mobile payments.

But that, in turn, will also strengthen China's surveillance of citizens, as the PBOC will know who pays what, where and when. This is especially true if this system is coupled with technologies deployed in parallel in Chinese cities, such as video surveillance and facial recognition. Furthermore, the digital yuan could also, in time, compete with the dollar in the domination of international payment systems, and thus be a way to get around sanctions imposed by Washington on foreign companies trading with countries like Iran.

This is still a long way off, and the PBOC insists that this is not its ambition. But the dizzying speed at which it is progressing leaves all scenarios open.

The difficulty for Western central banks is that MNBCs can also undermine financial stability. For example, what would happen if, in the event of a crisis, individuals were to abandon their bank accounts en masse and hold only their euros or dollars with the central bank? This could weaken the banking system, which is essential for financing the economy.

To avoid this, monetary institutions could limit the amount of MNBC that each individual can hold. Or they could reserve its use exclusively for exchanges between banks. In any case, Europe must not lose the race for innovation in this area because of cold feet or lack of ambition. Currencies have always been instruments of international power. Recast in a digital form, they will be even more so.

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Thousands of migrants in Del Rio, Texas, on the border between Mexico and the U.S.

Hannah Steinkopf-Frank, Bertrand Hauger and Anne-Sophie Goninet

👋 Сайн уу*

Welcome to Friday, where the new U.S.-UK-Australia security pact is under fire, Italy becomes the first country to make COVID-19 "green pass" mandatory for all workers, and Prince Philip's will is to be kept secret for 90 years. From Russia, we also look at the government censorship faced by brands that recently tried to promote multiculturalism and inclusiveness in their ads.

[*Sain uu - Mongolian]

🌎  7 THINGS TO KNOW RIGHT NOW

• U.S. facing multiple waves of migrants, refugees: The temporary camp, located between Mexico's Ciudad Acuña and Del Rio in Texas, is housing some 10,000 people, largely from Haiti. With few resources, they are forced to wait in squalid conditions and scorching temperatures amidst a surge of migrants attempting to cross into the U.S. Meanwhile, thousands of recently evacuated Afghan refugees wait in limbo at U.S. military bases, both domestic and abroad.

• COVID update: Italy is now the first European country to require vaccination for all public and private sector workers from Oct. 15. The Netherlands will also implement a "corona pass" in the following weeks for restaurants, bars and cultural spaces. When he gives an opening speech at the United Nations General Assembly next week, unvaccinated Brazilian President Jair Bolsonaro will defy New York City authorities, who are requiring jabs for all leaders and diplomats.

• U.S. and UK face global backlash over Australian deal: The U.S. is attempting to diffuse the backlash over the new security pact signed with Australia and the UK, which excludes the European Union. The move has angered France, prompting diplomats to cancel a gala to celebrate ties between the country and the U.S.

• Russian elections: Half of the 450 seats in Duma are will be determined in today's parliamentary race. Despite persistent protests led by imprisoned opposition leader Alexey Navalny, many international monitors and Western governments fear rigged voting will result in President Vladimir Putin's United Russia party maintaining its large majority.

• Somali president halts prime minister's authority: The decision by President Mohamed Abdullahi Mohamed marks the latest escalation in tensions with Prime Minister Mohamed Hussein Roble concerning a murder investigation. The move comes as the Horn of Africa country has fallen into a political crisis driven by militant violence and clashes between clans.

• Astronauts return to Earth after China's longest space mission: Three astronauts spent 90 days at the Tianhe module and arrived safely in the Gobi desert in Inner Mongolia. The Shenzhou-12 mission is the first of crewed missions China has planned for 2021-2022 as it completes its first permanent space station.

• Prince Philip's will to be kept secret for 90 years: A British court has ruled that the will of Prince Philip, the late husband of Britain's Queen Elizabeth who passed away in April at 99 years old, will remain private for at least 90 years to preserve the monarch's "dignity and standing."

🗞️  FRONT PAGE

With a memorable front-page photo, Argentine daily La Voz reports on the open fight between the country's president Alberto Fernández and vice-president Cristina Kirchner which is paralyzing the government. Kirchner published a letter criticizing the president's administration after several ministers resigned and the government suffered a major defeat in last week's midterm primary election.

#️⃣  BY THE NUMBERS

€150

An Italian investigation uncovered a series of offers on encrypted "dark web" websites offering to sell fake EU COVID vaccine travel documents. Italy's financial police say its units have seized control of 10 channels on the messaging service Telegram linked to anonymous accounts that were offering the vaccine certificates for up to €150. "Through the internet and through these channels, you can sell things everywhere in the world," finance police officer Gianluca Berruti told Euronews.

📰  STORY OF THE DAY

In Russia, brands advertising diversity are under attack

Russian sushi delivery Yobidoyobi removed an advertisement with a Black man and apologized for offending the Russian nation, while a grocery chain was attacked for featuring an LGBTQ couple, reports Moscow-based daily Kommersant.

❌ "On behalf of the entire company, we want to apologize for offending the public with our photos..." reads a recent statement by Russian sushi delivery Yobidoyobi after publishing an advertisement that included a photograph of a Black man. Shortly after, the company's co-founder, Konstantin Zimen, said people on social media were accusing Yobidoyobi of promoting multiculturalism. Another recent case involved grocery store chain VkusVill, which released advertising material featuring a lesbian couple. The company soon began to receive threats and quickly apologized and removed the text and apologized.

🏳️🌈 For the real life family featured in the ad, they have taken refuge in Spain, after their emails and cell phone numbers were leaked. "We were happy to express ourselves as a family because LGBTQ people are often alone and abandoned by their families in Russia," Mila, one of the daughters in the ad, explained in a recent interview with El Pais.

🇷🇺 It is already common in Russia to talk about "spiritual bonds," a common designation for the spiritual foundations that unite modern Russian society, harkening back to the Old Empire as the last Orthodox frontier. The expression has been mocked as an internet meme and is widely used in public rhetoric. For opponents, this meme is a reason for irony and ridicule. Patriots take spiritual bonds very seriously: The government has decided to focus on strengthening these links and the mission has become more important than protecting basic human rights.Russian sushi delivery Yobidoyobi removed an advertisement with a Black man and apologized for offending the Russian nation, while a grocery chain was attacked for featuring an LGBTQ couple, reports Moscow-based daily Kommersant.

➡️ Read more on Worldcrunch.com

📣 VERBATIM

"Ask the rich countries: Where are Africa's vaccines?"

— During an online conference, Dr. Ayoade Olatunbosun-Alakija, of the African Vaccine Delivery Alliance, implored the international community to do more to inoculate people against COVID-19 in Africa and other developing regions. The World Health Organization estimates that only 3.6% of people living in Africa have been fully vaccinated. The continent is home to 17% of the world population, but only 2% of the nearly six billion shots administered so far have been given in Africa, according to the W.H.O.

✍️ Newsletter by Hannah Steinkopf-Frank, Bertrand Hauger and Anne-Sophie Goninet

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