The gods of Western finance who run the monetary system of the United States are being blindsided by China’s two-pronged digital finance attack on the global reign of the American dollar. The speed with which China is powering ahead with digital currency + electronic payments is slowly but steadily taking the wind out of the greenback’s sails.

So warns a major new article this month in Bloomberg Opinion. In the piece, titled ‘Don’t Let China Mint the Money of the Future,’ Niall Ferguson of the Hoover Institution has warned that American policymakers are way too complacent in deploying blockchain-based financial innovations and other fintech weaponry in countering the ambitions of the new Eastern superpower.

Anyone tempted to dismiss the formidably learned Ferguson as a mere historian of economics and finance would need to reckon with another piece, published just two days prior to the Bloomberg article. Authored by eminent Harvard economics professor Kenneth Rogoff, this Guardian write-up is titled, simply and ominously, ‘The US dollar’s hegemony is looking fragile.’ Rogoff builds a broader argument against those still confident of the US dollar’s endurance at the top. While the greenback currently anchors around 70 percent of global GDP, any determined move by China’s monetary authorities to switch to an inflation-targeting regime for the renminbi would cause a cascade of effects across regional financial systems, sharply reducing the US dollar’s preponderance.  

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But, echoing Ferguson and a growing number of other commentators, Rogoff makes clear where the most potent threat lies: China’s central bank is way ahead of its Western counterparts in bringing a central-bank digital currency (CBDC) into the financial bloodstream of the economy. The CBDC will start pulling in other regional economies strongly into China’s economic orbit, as the resultant smoother international use of the renminbi will simply make better financial sense to countries already tied closely to the giant Chinese economy.

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For China’s ruling CCP, the greater control that the digital currency will provide, by permitting the authorities to peek into transactions at will, dovetails neatly into the way that the party prefers to govern. China has already surpassed the United States as the world’s largest economy (by purchasing power parity measures), and is also the world’s biggest trading entity.

For the CCP, toppling the US dollar must look like the most logical next step – and a very powerful and visible assertion of its arrival as the dominant superpower. But China’s government may not want to be too aggressive in its ambitions. According to blockchain and digital currency expert and close China-watcher Tanvi Ratna, “China does not want to antagonise anyone along the way.” 

The United States will start to push back strongly at some stage. It remains to be seen how effective these efforts will be.  

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