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.