I am trying to stay alongside this vast subject. As the world is submerged in huge debt, Western systems based on Bretton Woods have not adapted to a new world, and a new area of China is leading in changes in transnational and national currencies.
I am not going to try to pretend I can teach about this. But I can try to illuminate the path I see.
What I see is China focused on the real economy for its financial sector. That means the sector is there to serve the real economy and not to engage in speculation for its own purpose.
That is very different from the West, which under Reagan and Thatcher engaged in a big bang which opened up the financial sector to large profits and risks and led to the Asian Financial Crisis in 1998 , led by George Soros, countered by the Chiang Mai Accords of Asian central banks, and then the 2008 meltdown, QE, and a temporary respite in global financial speculation.
( the world of finance used to be dominated before this by pension, welfare and insurance funds, which were accountable to regulators and public ownership. Our markets in the West are now dominated by Private Equity and Hedge Funds and many different types of index based funds, and all their ownerships and regulation are confused to say the least.).
So now blockchain, which is national and transnational sectors such as energy and logistics, managing their operations across companies and borders through ledgers which note their transactions, and will clear those transactions. It is quite possible that, over time, many sectors trade will be carried out in these digital currencies.
These are not cryptocurrencies which are another, largely speculative based form of currency. Neither China nor Facebook seem to be considering that route. They are not supporting the move to more speculation. It is not clear how these digital currencies will be managed and controlled. Some think they will be decentralised but my sense is that China is not based on decentralisation of something as important as currency.
One thing is for sure. Big changes are coming and how do they affect us? They do not affect us on a daily basis. But the control of the world is changing. It may not be significant. It may be simplifying trading between major companies. It may mean that eventually comes into our lives in our bank accounts and our digital payment systems.
For those interested in China and its trajectory, and the USA attempts to contain the rise of China, this is significant. Purse strings comes to mind.
There is no way the world is going to be taken over by a new concept sweeping all before it. Too much power exists in many places, especially Washington. But first move advantages do exist. And we shall wait with interest if the East leads the world and engages in a myriad of new payment systems which has a consequence in reserve holdings by central banks. I sense this is going to be like digital payments and come from the East. And that means China. and that is the significance of President Xi expressing support for digital blockchain currency development.
Below is a reference to an announcement of caution from China. to not confuse this with cryptocurrencies and speculation. This is for the real economy. Thanks to Gerard Lyons for drawing it to my attention.
The reference is below.
And news of a wonderful, learned new book coming out soon – with an audio form as well, by Peter Nolan called
Finance and the real economy: China and the West since the Asian Financial Crisis – Buy it and listen to it . Peter gets new China better than anyone.