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PayPal co-founder and venture capitalist Peter Thiel recently argued that China is using Bitcoin as a financial weapon to drive out overall government-backed currencies, especially the US dollar. China is really keen on digital currency. Bitcoin isn’t the best way to challenge the dollar, Reuters reported.
According to reports analyzed by Reuters, theoretically, the renminbi and bitcoin’ illegitimate children could compete fiercely with the dollar. China’s currency is a reasonable store of value, and the huge economy behind it, where the majority of new bitcoins are mined, could potentially be useful. Bitcoin’s appeal is unaffected by government intervention, so it’s safe even from the devaluation of U.S. President Joe Biden’s multi-trillion dollar infrastructure plan.
However, both have major drawbacks. In China, the government’s direct involvement in the economy and capital flows is preventing the international common currency of the renminbi. In 2019, China accounted for 13% of world exports, but only 2% of the central bank’s foreign exchange reserves. Bitcoin is freed from government interference, but its volatility makes it a store of terrible value. And mining and trading agreements are slow and energy intensive.
Teal sees this as a threat, but it makes sense at first glance. China has been confronting the dominance of the dollar since at least 2008. Beijing policymakers are already testing digital currencies, while Washington’s foreign ministry is years behind. But if Beijing really wanted a weapon to compete with the dollar, the easiest solution would be to open up the renminbi, loosen regulations, and turn it into the foreign currency that foreigners actually want to hold.
It will be difficult to see President Xi Jinping give up this sufficient control. Insistence on the nationally designated financial system is acting as a major obstacle to the introduction of the renminbi worldwide. The same is true of China’s huge trade surplus, which was recorded during the month of December. What’s more, the gloomy human rights record is one reason Till and many others don’t want China to dominate the global monetary system.
As the proverb says to drive off the oranges with the oranges (Jay), maybe Bitcoin can play a role for Beijing, but it is not a guarantee check leading to international acceptance.