Peter Thiel on the Chinese Digital Currency

These comments caused some controversy during the week:

Christopher Nixon Cox: …

My question is regarding digital currency, we’ve seen recently in the last few days the China has proposed creating their own digital currency. And I was wondering how much of a threat is that to the dollar and its dominance of world markets? And if it is a threat, what can we do about it?

Peter Thiel: Well, you know, I think there’s sort of a lot of different things that fall under digital currency, presumably one that’s electronic form that China envisions is one that can be monitored even more granularly the way they’re being monitored currently. The geopolitical thing, I sort of wonder about is U.S. dollar is a reserved currency of the world. Some things about that that are good for the U.S., some things that are more problematic.

From China’s point of view, they want to get — they don’t like the U.S. having this reserve currency, because it gives us a lot of leverage over Iranian oil supply chains and all sorts of things like that. They like — they don’t want the renminbi to become reserve currency, because then you have to open your capital account and you have to do all sorts of things they really don’t want to do. I think the Euro, you can think of is in part a Chinese weapon against the dollar. Last decade has not worked out that way, but China would have liked to see the two reserve currencies like the Euro. And, even though I’m sort of a pro-crypto, pro-Bitcoin maximalist person, I do wonder whether at this point Bitcoin should also be thought in part of as a Chinese financial weapon against the U.S. where it threatens FIAT money but it especially threatens the U.S. dollar and China wants to do things to weaken it.

It’s China’s long Bitcoin, and perhaps from a geopolitical perspective, the U.S. should be asking some tougher questions about exactly how that works. But some internal stable coin in China — that’s not a real cryptocurrency. That’s just some sort of a totalitarian measuring device.

A few days ago the WSJ had a piece on the Chinese digital currency.

Cryptocurrencies such as bitcoin have foreshadowed a potential digital future for money, though they exist outside the traditional global financial system and aren’t legal tender like cash issued by governments.

China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user.

To be fair – this is a problem for all central bank digital currencies. The government will have control and visibility of all your transactions. As Thiel suggests it isn’t clear what the Chinese central bank is proposing. They say it will be blockchain based, but I haven’t seen how this blockchain is going to be secured. I strongly suspect it will not be a proof of work mechanism (the number of criticisms about the electricity cost of proof of work that have suddenly appeared suggests a concerted attack on the concept). That leaves proof of stake and proof of authority. I suspect the Chinese digital currency is going to be proof of authority – in English, CCP say yes or CCP say no.

So I’m not overly concerned about a Chinese digital currency. I am concerned that some people will think that the ‘solution’ to a Chinese digital currency is a US digital currency or Australian digital currency. (People who spend more than 10 seconds thinking about this should realise that we have digital currencies already).

The solution to a Chinese digital currency is to have superior competing products in the market. Facebook, for example, had a product ready to roll last year.

Then, in mid-2019, Facebook Inc. said it would pursue its own cryptocurrency. The realization this could circulate in a user base far bigger than any national population brought immediate recognition that technology could upend traditional currencies.

While U.S. regulators focused on stopping Facebook, ultimately succeeding, China accelerated its pursuit of a digitized yuan, launching trials in April 2020.

Suddenly, China’s money moves bore watching. Central bankers from the U.S. and other Western economies fret that what Facebook planned with a digital currency could now be done by China, a powerful government.

Slow clap US regulators. Slow clap.

So there is good news and bad news. The good news is that the Chinese digital currency isn’t going to be the end of western civilisation as we know it. The bad news – for all you anti-tech conservatives – is that those big-tech companies that you loathe so much are going to be the first, second, and third lines of defence against foreign central bank digital currencies.

This entry was posted in Cryptoeconomics, Market Economy, National Security, Oppressive government. Bookmark the permalink.

20 Responses to Peter Thiel on the Chinese Digital Currency

  1. Makka says:

    Government Ban on Bitcoin Would Be ‘Foolish’: SEC’s Hester Peirce
    Attempts by governments to stop people from trading Bitcoin won’t go well, according to Crypto Mom. “You’d have to shut down the internet.”

    Long way to go yet.

    China’s plan is for a digital form of fiat currency. BTC is not issued by a Govt (therefore not fiat) and it’s issuance is already capped at 21 million (scarcity grows). Unlike the madness currently underway where currency by the Trillions is being coined out of nowhere. The 2nd oldest bank in the US (as well as Citi, GS and JPM) is getting on board;

    State Street, the second-oldest bank in the U.S. with $3.1 trillion in assets under management, is providing the infrastructure for a new bank-grade trading platform for digital assets set to go live mid-year — and could eventually use the system for trading itself.

  2. Bruce of Newcastle says:

    The government will have control and visibility of all your transactions.

    Exactly. And there, immediately, is the primary reason for the Chinese cryptocurrency, since a fully electronic currency removes the anonymity of cash transactions. Electronic cash is a cousin and ally of the Chinese social credit system.

    Add also that blockchain electronic currency is a neat way to avoid unauthorized electronic accountancy fraud, counterfeiting and corruption and you can see why a country fighting endless corruption would want it to be blockchain based.

    The second aspect is that other cryptos like bitcoin are disliked by China as they are used by the population to get around capital controls. Having a Chinese cryptocurrency makes it easier to crack down on bitcoin in the same way as having Chinese national versions of Twitter and Facebook makes it easier to control dissent.

    Further, China is into bitcoin mining in a big way.

    China’s bitcoin mining is threatening its climate change targets, study says (8 Apr)

    Some 75% of the world’s bitcoin mining is done in China, where there is cheap electricity and relatively easy access to manufacturers who make specialized hardware, according to the study.

    This can only happen with CCP tolerance of it. And the logical reason why they might tolerate it is that owning substantial amounts of bitcoin is a means of control of the market. And China loves to establish control levers into areas of the global economy it wants to be able to nudge when it feels like it.

  3. Tel says:

    That leaves proof of stake and proof of authority. I suspect the Chinese digital currency is going to be proof of authority – in English, CCP say yes or CCP say no.

    We already have plenty of proof of authority (i.e. centralized) digital currencies, for example EFTPOS. China has payments via mobile phone and I think it’s been running for several decades. Digital currency is after all only a payment system.

    When they say “threat to the dollar” what they really mean is threat to the handy ability to inflate the dollar, enjoy the profits of seigniorage and force citizens to suck it up because they have no other alternative options. In that case don’t even bother looking at digital currency, what matters is that China is no so terribly in debt, they have relatively low taxes internally and the Chinese people are generally comfortable with the idea of working and paying their own way in life.

  4. Baa Humbug says:

    A company called BullionFX is looking at launching a 100% gold backed crypto by mid year. It’s in talks with gold miners at mo.

  5. Mick Gold Coast QLD says:

    “crypto”, “block”, “bit” currency? Keyboard internet money?

    I might as well have spent the last few minutes attempting to understand a Greek translation of Spike’s “Adolf Hitler: My Part in His Downfall”.

  6. Bruce of Newcastle says:

    A company called BullionFX is looking at launching a 100% gold backed crypto by mid year.

    Problem with that is already paper contracts 10x outnumber physical gold, and physical gold is at a premium to paper gold. If you try to convert the gold-backed paper into the physical you’re going to be out of luck. But the gold price can be manipulated by the paper contracts in a sort of cart leading the horse way.

    There wouldn’t be any problem if it was restricted to physical gold, but lumps of stuff are easy to steal. Maybe if someone could invent a way to secure physical gold in a crime-proof way (including against fraud by the securers) that might produce the ultimate blockchain. After all there’re only so many atoms of the stuff around.

  7. covid ate my homework says:

    Indeed BoN, rehypothecation goes all the way back to the Medici’s and goldsmiths of that time. For a while Crypto seemed unaffected by the virus but it would appear to be captured like all other assets in recent times.

  8. strayan drongo says:

    I didnt even want to sleep tonight….

  9. mundi says:

    This is what I believe is happening right now:
    -In China, some companies (possibly via CCP order) are taking control of all the PC graphics cards. Prices of even used 3 year old graphics cards are now higher than they were 3 years ago at launch. Prices for new cards are sky high. The numbers from the fabs don’t add up with the number of partners who make the cards. A huge huge amount are disappearing into the black hole that is china.

    The reason is obvious: Almost any graphics card made in the last 3 years is profitable to mine digital currency with. Especially in a country with low cost of electricity. As posted above by bruce: Its believe that 75% of bitcoin mining is now done in China.

    Since bitcoin is a democratic currency (The majority rule – because the ‘rules’ of bitcoin are distributed) China is probably already in control of Bitcoin. They will mine it and sell sell sell until it crashes. Its basically free money for them at this point. And most of this money is coming straight to them via either naieve investers and hedge fund managers investing in a tech they know nothing about, or form black market transactions in the west.

  10. Makka says:

    They will mine it and sell sell sell until it crashes.

    Miners are both holders and sellers at various times. Currently they are nett holders even at these new record highs. With the growing waves of institutional demand coming on stream, there will be more than ample buyers for miners who want to sell.

  11. Makka says:

    even at these near record highs.

  12. Squirrel says:

    “The solution to a Chinese digital currency is to have superior competing products in the market. ”

    Along with continued tarnishing of brand China – which they themselves are assisting in so many ways, like a gigantic millipede intent on shooting itself in every foot.

  13. Waz says:

    I just don’t think governments will ever allow true digital blockchain money to be an effective medium of exchange. If they can’t creat it (print it), they can’t fund their deficits. If digital money ever gets close to real world acceptance then governments will simply pass laws to allow them to control it.

  14. John A says:

    Cryptocurrencies suffer from the same problem as Conch Shells: indivisibility.

    One Bitcoin is currently “worth” over $A76000, which means you could buy a car with one, maybe even put a deposit on a house, or fund a business startup.

    But you can’t buy a newspaper or an ice cream with a 1/38000th of a Bitcoin.

  15. Anonandon says:

    John A

    Ever heard of satoshis?

  16. Mango Man says:

    Digital currencies will only have standing if the value is backed by the State in some form. The main the reason States would do that is to increase their oversight of people’s activity.

  17. Kneel says:

    “Cryptocurrencies suffer from the same problem as Conch Shells: indivisibility.”

    Crypto is infinitely fungible – people are quoting “milli-BitCoin” and if the value keeps going up, they will go to micro- and even nano-BitCoin as pricing.

  18. Anonandon says:

    Bitcoin is not infinitely fungible – each bitcoin consists of 100 million satoshis.

  19. Makka says:

    BTC now making new ATH’s in AUD….

  20. John A says:

    Anonandon says: April 10, 2021, at 9:16 am

    John A

    Ever heard of satoshis?

    Nope, –) but thanks for the tip. There is still a limit of 21 million x 100 million. I hope that makes it a good currency.

    I must refresh my knowledge base on money…

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