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National digital currencies may become another sphere of competition

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According to China Finance, an edition of People’s Bank of China, China should become the first country to launch into circulation a digital national currency. Reports by Reuters say a move of this kind will facilitate China’s efforts to expand the international status of yuan and reduce the country’s dependence on the international system of payments in dollars.In addition, the right to issue and control of digital currency will spill into a “new battlefield” of competition between sovereign states.

According to reports by the Bank of International Settlements, nearly four fifths of the central banks worldwide have been looking into the possibility of creating national digital settlements systems. The key element of such systems will be national digital currencies, also known as Central Bank Digital Currencies (CBDC). CBDC is virtual money which is controlled by the national or supranational central bank, as in the case of the  European Central Bank, and which exists only in the form of information recorded on computer memory chips and is not issued in cash.

CBDC is fully controlled by state-run financial institutes. Unlike most present-day crypto currencies, these currencies are emitted on a centralized basis and are equivalent to the traditional “paper” money in the digital form. The Central Bank, which issues CBDC, acts as both a regulator and a holder of the accounts of all owners of the national digital currency. Every CBDC unit acts as an equivalent to a paper banknote. Overall, CBDC is supposed to assume the best properties of crypto currencies – convenience and security – and borrow the time-tested features of the traditional banking system: regulation of currency circulation and its support with appropriate reserves.

China is acting as a pioneer in introducing digital national currencies. The first theoretical research into digital yuan got under way in 2014, at the initiative of People’s Bank of China, and the research laboratory on digital currencies appeared in 2017. At the end of April 2020 a spokesperson for People’s Bank of China confirmed that digital yuan tests were under way in several cities of China:  Shenzhen, Suzhou, Chengdu, Xiong’an, and “on the sites of 2022 Winter Olympics” in Beijing. The practical work is carried out by “relevant structures” in the person of commercial banks and settlements systems. Such a structure makes it possible to avoid concentration of risks at the level of Central Bank and to cut spending on creating and developing the corresponding infrastructure. As for other countries, Sweden has come closest to starting testing the digital currency – e-crown.  

China’s CBDC is considerably different from the current private crypto currency projects. Emission  is carried on a centralized basis, while the reputation of the Central Bank is beyond doubt; this makes blockchain technology, which is normally key for private crypto currencies, superfluous. Should the proposal to issue digital yuan receives support, these money units will become part of Defense Ministry aggregate, along with banknotes, coins and deposits on the accounts of People’s Bank of China. It is necessary to point out that at present, there is no talk of replacing all cash with digital currency.

Sceptics believe that the “digital yuan” will preserve for the near future the same restrictions, for example, in terms of convertibility, as the fiat one. They say “Beijing’s main objective is not to internationalize yuan, but to establish a total control of people’s and companies’ payments, fight against shadow economy and corruption”. What is meant is not “the invention of money yet again”,  but that “China’s prospects relative to the status of the reserve currency depends on the same factors as applicable to the emitter of this currency”.

Nevertheless, the geopolitical consequences of CBDC emission could be fairly significant. A few years ago Newsweek pointed out that the US authorities and special services began to keep a close eye on the first private crypto currency,  bitcoin, from the very first days of its appearance. What they fear most is that “America’s foes”, be it governments or non-governmental organizations, will manage to create a financial network which will not in the least depend on the US dollar. In that case  the United States would lose an important instrument of non-military pressure which they could use against opponents and enemies.

At present, the dollar accounts for more than four fifths of all currency exchange transactions worldwide. As a result, all Washington needs to do to block the unwelcome financial operations is to put suspected individuals, organizations or countries on the “blacklist” to be sent to all banks across the globe. For fear of losing an opportunity to make payments in dollars an overwhelming majority of financial institutions obediently follow the US instructions. In this context, Washington’s concerns about private crypto currencies are of legal, rather than political nature.

Another matter is if and when emission of crypto currencies becomes the business of states or inter-state institutions. In this case unilateral sanctions could lose sense; and so could the withdrawal of one country, even such a powerful one as the USA, from multilateral agreements the provisions of which must be implemented under threat of facing sanctions. Finally, Washington will no longer be able to freely track down monetary flows in dollars.

State digital currencies threaten such a weighty instrument of US political influence as the inter-bank settlements system SWIFT. They guarantee nearly  instant payments without participation of the dollar. Amid the growing anger over the escalation of US sanctions, Canada, Singapore, Hong Kong and Thailand have been testing exchange of information and payments without SWIFT and American correspondent banks. The European Central Bank has set up a working group to look into the possibilities of establishing interaction of national digital currency projects, with the participation of Canada, Japan, Sweden, Switzerland, and Britain.

Considering this, the appearance of the digital yuan could be particularly threatening for the US. Provided Beijing exerts efforts to this end, there will quickly appear a circle of countries in Africa, in the Middle East and in South East Asia which will conduct trade without using the US dollar.

China’s top positions in digital finance technology enables it to offer an extensive range of infrastructure solutions, both on the government level, and for end consumers, private businesses and private individuals. These include making payments, receiving and paying off loans, payment terminals, online purchases and online payments for services. In their turn, measures of this kind will boost the demand for yuan as a reserve currency. China will de facto receive the right of veto to any decision by other countries to impose sanctions.

An example of possible geoeconomics consequences of such a development was presented a year ago by Danish Saxo Bank as part of a series of its usual “shocking forecasts”. Under one of them, by 2020 there will appear “a new reserve asset”, an Asian Digital Right (ADR), and the Asian Bank of Infrastructure Investments could act as an emitter. ADR would become “a clear step” towards “removing the American dollar from regional trade” and apparently, from global trade as well. Under such conditions, the dollar is expected to weaken “by 20% against ADR and by 30% — against gold” “in just a few months”.

For today, there exist several scenarios of the formation of digital currency “multipolarity”. Amid the current trade and financial confrontation between the USA and China and should China’s progressive movement to expand its presence in global economy persist, the most likely development is a movement towards a “bipolar” system of digital currencies, the dollar and the yuan, with an important but mainly regional role of digital euro and Japanese yen.

However, in the conditions of the growing concern on the part of international economic and financial institutions over the escalation of the dollar-yuan confrontation, there is a chance for “a third party” to gather strength and transform into a global digital instrument of payments and a reserve asset. The first candidate is  the currently hypothetical “digital euro”. What could play into the hands of an ECB-emitted digital currency is the political “aloofness” of the main institute of monetary policy in the euro zone. From time to time the European Central Bank comes under criticism from the finance authorities of nearly every member country of the euro zone, which makes it “equally distant” and consequently, potentially attractive for international trade entities.

A third scenario provides for the appearance of a “global”, “worldwide digital currency”. For example,  “digitalization” of Special loan drawing rights of the IMF. The idea of “a synthetic hegemon currency” based on top currencies was voiced not long ago by former President of the Bank of England Mark Carney. At the same time, trends towards economic division  along with the corona crisis-caused need of many countries for re-industrialization, and also the desire to protect national banking systems, may breathe a new life into the idea of “non-state” international digital currency or currencies. What could become an interim stage is a system where state, private and corporate digital payment instruments co-exist side by side.

In general, a national digital currency makes it possible to overcome such drawbacks of private crypto currency projects as instability of the rate, and limited usage. The issue of a crypto currency by a central bank reduces to zero the number one problem of such monetary instruments – the problem of trust, including on the part of government agencies and monetary policy regulators.

The arrival of a digital currency, emitted by the monetary authorities of one of the world’s top economies, would make, if not a breakthrough, then an economic and political effect. It would reduce considerably the importance of a number of traditional instruments of international politics. Simultaneously, it would trigger the arrival of new policies, if not paradigms.

However, at present, the main challenge for digital payment instruments is whether it is possible to create a technology which would be immune to external influence and easy to use. Unforeseen “influxes” of users regularly lead to “collapses” of government electronic resources across the globe, even in the absence of intentional attacks. In the case of a national digital currency, nobody can predict what will happen in the event “the service is denied”. 

From our partner International Affairs

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EEU: An Irrelevant Anachronism or a Growing Digital Enterprise Dynamo?

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A commonwealth of interests

The search for a stable Eurasia depended on the effectiveness of a durable system for the post Soviet space which could easily descend into an arc of instability if was not properly managed. Moscow had to be careful not to view these ex Soviet countries as its natural hinterland to be taken for granted and to upgrade its relations with each of them to preserve a communality of interests that had eluded it in Ukraine. The world of the command economy centred on Moscow would be made over on an entirely new basis that reflected the fast moving 21st century digital economy. Where common standards and freedom of movement of people and capital was meant to create a climate of openness and facilitate cross border business not to seal off Eurasia from the outside world. The fragile nature of post Soviet identities meant that a sense of commonwealth and common citizenship rooted in an overarching Eurasian identity would be more appealing to a growing entrepreneurial class disillusioned with the results of narrow ethno- nationalism as a ruling idea. The danger was that the more the Eurasian Union grew in stature it would have to navigate roadblocks deliberately placed there by powerful nationalist interests who perceived it as threat to their power base. And by stoking tensions with Russia periodically these former Soviet states could remind the outside world that they were not tame satellites of Moscow or artificial constructs but were free to decide their own destinies.

The path to some kind of durable Eurasian concept was obstructed by the reluctance of many Eurasian states to give up on the idea that eventually find a place in the west. The Eurasian union might be a useful stopgap while they waited to the privileged world of the west where they felt they ultimately belonged. Even though the chances were slim that it would ever happen. The Russian view of the Eurasian Union was that it would be a modernizing force which would have the express aim of bringing the region closer to the world and transforming it into a forward thinking technological giant. It would not be a repeat of the “Soviet experiment” which was a parallel universe closed to outsiders with information tightly controlled. And with the official version vastly at variance with the grim reality. Its core vision this time around was to effectively connect the region to the outside world and be at the forefront of new innovation. It would not depart from international standards and go off on its own tangent or conduct its affairs with guarded secrecy. But happily embrace new ideas and fresh thinking. Russia’s objectives were to circumvent parochial state leaderships and local bureaucracies and create a global brand that would capture the imagination of high net worth investors and provide a real alternative to pro western orthodoxy. With first class transport, logistics and a digital economy that would be the envy of the world, it would be first and foremost technocratic and meritocratic and not so much ideological in nature.

The Russian leadership concentrated on achieving maximum consensus in decision making and adopting policy positions where the weaker states would not be unfairly disadvantaged. While Russia would be providing the bulk of the digital infrastructure and at its own expense it would be considered common property of the Eurasian economic union in many ways. Russia’s contribution was based on a more generous model than its Chinese partner which took the form of loans that could result in forfeiture of assets if loan payments were not met in time.

Digital future

Thus Russian prime minister Mihail Mishustin recommended at a meeting of the inter Government commission implementing a “digital project” across the whole Eurasian union. This would provide a “specialist information system” in the sphere of “migrant labour” that would better serve the needs of business and the migrant communities. These measures would seek to gradually phase out and replace the patchwork, confusing system of regulations with a common framework. So for example in future the EEU would receive powers that would promote standardization. The Eurasian commission adopted a new technology based system of labelling products that “would apply in future in relation to new categories of labelled products.” The prime ministers of the EEU states approved a document that would “establish a time limit by which member states would be notified of the intention to introduce labelling on their territory.” And would give them a “period of nine months to outlaw unlabelled products.”  The new system should eventually be incorporated fully at the national level so that business could “escape unnecessary burdens” caused by “different systems of control.” and gradually filter out bureaucratic anomalies.

The priority was to create a level playing field so that the EEU was not perceived as just an exclusive club for Government connected state companies. But that it would also create conditions for small and medium enterprises to thrive and expand and ease substantially the costs of doing business. As well as reversing the favouritism traditionally shown to large companies by making the ability of SME’s to operate in an environment that was transparent and equitable more concrete. For example the prime ministers of the EEU states agreed to a “unified ecosystem of digital transport corridors”. The total cost of the scheme would be around 10 billion roubles. The cost divided between the union and the member states. It would provide a “service for the access of electronic route maps, international transport charging rates” as well as electronic protocols that would give updated information on interior ministry regulations etc. This unified system was especially useful to SME sector who were often reliant on “outside platforms” which were often “not connected to each other” and ” the absence of coordination added to their logistical costs.”

Open banking

Similarly the five member states of the EEU have agreed to form a common financial market by 2025. A key role in this is played by financial technology which will be deployed to make financial services “more accessible, cost favourable and safer”. Private and business customers can expect “financial services of higher quality and greater choice to be available”. And with such a hi tech financial monitoring tool at the authorities disposal “credit and financial institutions will have to reveal the origin of their capital”. An important element was the Application Programming interface which gave the programme the capacity to conduct biometric identification and to connect IT systems together so “they can exchange information between themselves.” Also a pilot project was launched which the AFT system together with 13 Russian banks were undertaking. “The aim of it is to improve automated online credit lending for small and medium businesses.” And create a level playing field. This was another example of how the Eurasian Union was preparing the ground for a greater role for the more dynamic and innovative SME sector in anticipation for a shift from a resource based economic model to a more diverse demand and consumption one.

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Capitalism and the Fabrication of Food Insecurity

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Human security can be depicted as the notion through which the widespread and cross-cutting challenges to the survival, livelihood and dignity of individuals can be identified and protected. In simpler words, folks are protected against threats and situations that deem to violate their vital human rights. Thus, with human security, the protection and empowerment of people is promoted. With that said, under the umbrella of human security, food security holds immense significance; as, it is responsible for sustaining human life and health. In addition to that, it also stipulates individuals on the required energy for progression, resulting in the evolution of state institutions and its functioning. Henceforth, food security has a direct co-relation with the development of a state.

Notwithstanding, the lack of access to sufficient quality of affordable food results in food insecurity, which can be depicted in several states and communities across the globe. However, contrary to popular belief,this food insecurity is not a subsequent of scarcity; in fact, the annual production of food surpasses the benchmark of sustaining one and a half times more food for the world’s entire population. In reality, the scarcity narrative was produced by corporate food regimes to serve their interests through capitalism. Since, it can result in the incorporation of price increase and generation of maximum profit, indicating how the agricultural sector is influenced by the interests of elite companies. In fact, the top eight firms in agriculture hold 80% of the sector’s market share, and these particular institutions dictate the conditions and rules for our food system, while effectively setting the price of grain for the world subsequent to their benefits. As a result, several regions of the world experience food insecurity, which essentially tarnishes their road to progression.

Through capitalism, food has transformed from a necessity into a commodity, solely for the purpose of profiting from its high demand. This denotes the horrors of capitalism; because, profits are given priority over human needs. Due to this lust for profit, corporate food regimes initiated the “Green Revolution” in the 1950s and 1960s. On the surface level, the movement consisted of the development of new disease-resistant strains of food crops, primarily wheat and rice. The incentive was to increase crop yield in the developing world, through countries such as India and Mexico. Nevertheless, beneath the surface, this movement led to an increase in food insecurity and served the interests of the elite. The green revolution led to the introduction of subsistence farming systems, in the form of new technology. However, in order to adapt to this system, farmers required cash to buy seeds, fertilizers and equipment, along with the continuous supply of cash to maintain them. Meaning, the farmers could not rely on eating their own produce and selling the surplus. Instead, crops had to be traded with agricultural corporations, in order to continue to earn a living through farming. Thus, the green revolution did not lead to improving small-scale farmer productivity. In fact, it monopolized the agricultural sector and consolidated the profit in the hands of specific transnational corporations. The companies in turn influenced the agricultural market to their benefit, leading to food insecurity.

Furthermore, food insecurity is a result of the systematic failure of capitalism. One of the ways to attain maximum wealth for agricultural corporations and their shareholders, is through over production. Hence, these companies set a fix price for the farmers cost. In this manner, farmers cannot produce less crops despite declines in agricultural markets. As a result, crops are over produced and their market price declines. In order to cover the fixed costs, the farmers have to carry out more production, which puts them in perpetual debt. In addition, with over production, goods pile up unsold, workers are laid off, demand drops and prices of products increases, resulting in lack of access for poor people.

A country fighting against the influence of the corporate food regime is India; as, Indian farmers in Punjab and Haryana have carried out mass protests recently. Reason being that the Indian Parliament has passed three agriculture acts—Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, Farmers (Empowerment and Protection) Agreement of Price Assurance, Farm Services Act, 2020, and the Essential Commodities (Amendment) Act, 2020. Since Modi’s regime favors the interests of the elites and the corporate regimes, these laws have made farmers of India vulnerable to exploitation and the prevalence of food insecurity. Firstly, the laws aim to remove the agricultural produce market committee (APMC), which is the area that regulates the notified agricultural produce and livestock. Through the APMC, traders were provided with licenses and a minimum support price for crops was set. As a result, corporations could not dominate the agricultural sector; however, the new laws challenge that very concept. Even though the Indian government has argued the changes will give farmers additional freedom, the farmers claim that the new legislation shall eliminate the safeguards set to shield them against corporate takeovers and exploitation. Therefore, the monopolization of corporate regimes in the Indian food system shall further devastate the livelihoods of vulnerable communities, and the food insecurity will prevail.

As a solution to food insecurity arising from capitalism, a reappearance in the pre-capitalistic reality should occur, where food is not bought and sold to the highest bidder. Instead, food is sold outside exclusive markets as a basic right of all citizens of a state. This system can be regarded as the system of communal responsibility. The success of which can be traced back to the era of empires, where individuals did not experience food insecurity despite the rise and fall of empires. Proving how, co-operative production and fair distribution of food is possible. Hence, in conclusion, food insecurity is a fabrication of capitalism and the interests of corporations; where, wealth is saturated in the elite class. Accordingly, the solution is to return to the pre-capitalist reality and focus on communal responsibility. 

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China’s Emerging Diamond Industry

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Since the 1980s, China’s economy has been on the rise. With a prosperous manufacturing industry, China has a growing middle class and an ever-increasing demand for luxury goods. Compared to Russia, China does not have large diamond reserves. However, the country makes up for its lack of resources by gaining access to diamond reserves in Africa and producing affordable synthetic diamonds.

The Underdevelopment of China’s Diamond Industry

China’s diamond industry is underdeveloped due to lack of resources in diamond mines domestically and overseas. According to a report by Frost & Sullivan in 2014, China is still developing its overseas diamond market, and only a few companies have access to diamond mines.

According to the F&S, Chow Tai Fook, a Hong Kong-based jewelry chain is the only Chinese company that has obtained the DTC (The Diamond Trading Company) qualification of distributors. As a subsidiary company of De Beers, the DTC sorts, values and sells about 35% of the world’s rough diamonds. As a renowned company in the industry, Chow Tai Fook has its diamond polishing factories to source rough diamonds from mining companies directly. It also has supply agreements with Rio Tinto, Alrosa and De Beers. Chow Tai Fook has four diamond cutting and polishing factories—two in South Africa, one in Botswana, and another in China. However, for other renowned Chinese companies on diamond processing, such as Henan Yalong, or CR Gems, they cannot purchase rough diamonds directly from the market, so they mainly produce synthetic diamonds. Even if they are to process rough diamonds, they can only purchase raw materials from secondary markets, where the price of rough diamonds is high, leading to even higher production costs.

By contrast, India, the world’s largest diamond processor, has more than 60 companies with the DTC qualification of distributors. India also has access to a number of essential diamond mines. For a long time, India has relied on suppliers from Russia and Africa and diamond trading centres such as Antwerp, Tel Aviv and Dubai for rough diamonds. Most of the diamonds produced in the world are shipped to India for cutting and grinding and then go into the global retail market. In this way, India dominates the diamond processing industry.

China’s diamond processing industry and African mines

By securing deals with companies and governments that control diamond mines in Africa, China is breaking India’s monopoly on diamond processing through the Belt and Road Initiative. This had caused China’s diamond exports to increase by 72% by 2014, generating revenue of US$8.9 billion. Countries and regions that signed the Belt and Road Initiative in central and southern Africa, such as South Africa, Gambia, Zaire, Botswana, Zimbabwe and their surrounding areas are the most famous rough diamond sources and producing sites of the world. In recent years, Chinese company Anjin Investments, a joint venture between Anhui Foreign Economic Construction Co. Ltd., and Matt Bronze Enterprises of the Zimbabwe Defense Ministry and the Zimbabwe Defense Forces, has been negotiating with the Zimbabwe government on mining resources. President Emmerson Mnangagwa of Zimbabwe has recently allocated fresh diamond mining claims to Anjin Investments in Chiadzwa in Manicaland province, four years after the company was evicted from the mineral-rich area alongside other miners on allegations of under-declaring proceed in 2016. Meanwhile, Russian company Alrosa also signed a number of agreements with Zimbabwe Consolidated Diamond Company (ZCDC) to establish a joint venture for Zimbabwe’s primary diamond deposits. It will be interesting to see whether China and Russia will cooperate in Zimbabwe for diamond mining in the future.

To summarize, combining Chinese craftsmanship and rough diamonds of high quality is bound to be a massive opportunity for the global market in the future. Besides, it is also crucial for China to strengthen workers’ vocational skills to improve the diamond processing industry’s overall efficiency and production level. As China begins to further invest in the BRI project, Chinese companies may find more opportunities in Africa in the future.

China’s synthetic diamond industry

According to the F&S report, the global market for rough diamonds will lead to a shortage of 248 million carats by 2050. Customers from China and India have significantly contributed to this number. By advancing its technology in producing synthetic diamonds, China finds another way to develop its diamond industry.

In recent years, China’s synthetic diamond industry has been expanding along with the increasing global demand for China’s synthetic diamonds. According to a report by Leadleo on China’s synthetic diamond industry, there were 8,278 diamond equipment, materials, micro-powder, composite sheet, diamond tools and diamond products companies in China’s diamond industry as of the end of 2018. The top five leading enterprises in the industry occupy about 80% of the market share and have high market concentration. In terms of the industry’s geographical distribution, large leading synthetic diamond enterprises are mainly located in the Henan Province due to the local government’s policy preferences. By contrast, small diamond manufacturing enterprises concentrate in the Anhui Province. On a technical level, the low-end sectors of China’s synthetic diamond industry have developed their international market competency by improving their products’ quality to reach international standards. By contrast, Chinese enterprises that manufacture high-end diamonds with special functions still have a long way to go. There is a significant gap between them and leading global manufacturers such as the UK’s Element Six, one of the world’s best manufacturers for high-end synthetic diamonds. Therefore, many artificial diamond companies in China are currently working on enhancing their technology, striving for breakthroughs to meet global customers’ various demands, and obtaining more significant profit margins.

To conclude, China’s diamond industry is emerging. With the development of the synthetic diamond industry and more access to African mines, China is hoping to make more breakthroughs in the diamond industry in the near future.

From our partner RIAC

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