A bipartisan group in Congress says China’s impending rollout of its digital currency could challenge the U.S. dollar’s global dominance and pose a threat to national security.
With the People’s Bank of China’s (PBOC) stated goal of fielding the digital renminbi by the 2022 Winter Olympics in Beijing, China is poised to become the first major economy to field a central bank digital currency (CBDC). The PCOB began developing the digital renminbi in 2014 and began testing the currency in April 2020.
The digital renminbi, also known as Digital Currency/Electronic Payment (DCEP) in China, is directly in line with China’s push to place its currency as a player on the global stage and coincides with Beijing’s progress in other technologies like artificial intelligence, according to a January report from the Center for a New American Security.
But the report also says Beijing aims to use the currency to bolster the Chinese Communist Party’s (CCP) political agenda and curb dissent.
“Whereas PBOC officials have indicated that they will harness huge amounts of DCEP data to enhance monetary policy and monitor for illegal activity, officials higher in the Chinese government have stressed DCEP’s value as a tool for enforcing party discipline,” the report reads. “PBOC officials also have said that DCEP will have ‘controllable anonymity,’ allowing the central bank to see all of the transactions taking place while maintaining privacy among transacting parties.
“However, the system will also enable the CCP to exercise greater control over private transactions, as well as to wield punitive power over Chinese citizens in tandem with the social credit system,” the report states.
Lawmakers and experts say the U.S. should pay close attention.
The Senate Select Committee on Intelligence last week included the Communist China’s Digital Currency — National Security Risks Act in the Intelligence Authorization Act for fiscal year 2022. The bill, introduced by Senate Intelligence Committee Chairman Mark Warner and Sen. Bill Hagerty, would require the Biden administration to report on potential risks related to the CCP’s potential to evade sanctions, surveil financial transactions, and carry out economic coercion and social control through stemming from the digital currency.
“Now is the time for the U.S. intelligence community to act and inform us of their assessment of the different national security risks to America so that Congress may act appropriately and protect the U.S. dollar’s position as the world’s reserve currency — a key ingredient of America’s global leadership,” said Mr. Hagerty, Tennessee Republican.
“A Chinese digital currency could have significant national security implications for the U.S.,” said Mr. Warner, Virginia Democrat. “We cannot be caught flat-footed on these developments, which is why I fought to include this bill in the Intelligence Authorization Act.”
Members of the House are also calling for vigilance as the rollout nears. Two members of the House Financial Services Committee, Reps. French Hill, Arkansas Republican, and Jim Himes, Connecticut Democrat and chairman of the subcommittee on national security, international development and monetary policy, say despite China’s claims that the digital currency is not meant to challenge the dollar’s primacy as the global reserve currency, China’s move should still be viewed with caution.
“[T]he CCP has frequently exposed their expansionist mindset through their territorial claims in the South China Sea and predatory lending like the Belt and Road Initiative in Africa and Asia,” the lawmakers recently wrote in a recent op-ed published by The Hill. “If America’s global influence is weakened, the CCP could exert their influence in pursuit of their own objectives — which could prove to be even more alarming than their currently harmful practices.”
“A potential devaluation of the U.S. dollar in foreign exchanges could jeopardize global monetary and economic security,” they wrote. “This threat is only worsened when the counter currency (i.e. the renminbi) is not based on a free and open economic standard, or the rule of law, as the levers of currency control can be easily manipulated by the CCP.”
Mr. Hill and Mr. Himes introduced legislation in May aimed at maintaining the dollar’s global hegemony. Their bill, the 21st Century Dollar Act, calls on the Treasury Department and the Federal Reserve to implement a strategy to ensure the dollar remains as the global reserve currency through the promotion of open and transparent financial markets and improvements to payment methods.
The bill would also require the Treasury and the Fed to report on any risk to the dollar posed by the renminbi.
“Maintaining the U.S. dollar as the primary global reserve currency must remain a U.S. national security priority and part of a coordinated effort to combat China,” the lawmakers wrote.