Regulators will ultimately “stop the music” when it comes to bitcoin and other cryptocurrencies, Amundi’s chief investment officer Pascal Blanque said on Thursday.
According to a report from Reuters, Blanque called bitcoin a “farce” and said cryptocurrency regulators will ultimately be forced to end the party at a news conference on Thursday.
The CIO went on to argue that investors should be adding exposure to the Chinese renminbi before entering the crypto fray.
In a recent research report from Amundi, the asset manager said cryptocurrencies “cannot be considered a form of money as they are neither a proven store of value nor a recognized unit of account and even less a universal means of payment.”
However, the report did say that a “fully decentralized and disintermediated cryptocurrency system could enable the development of global payment systems that are faster, cheaper and more inclusive than current payment systems.”
Blanque echoed the report’s findings in the news conference, saying bitcoin will mainly “be remembered for pushing central banks to adopt digital money.”
Bitcoin’s price has fallen roughly 40% from its April 13 record high of $63,729.50 per coin. The digital asset was hurt when China reiterated its call for a crackdown on bitcoin mining in the region. On-going concerns over the environmental impact of the cryptocurrency have also taken a toll.
Despite the fall, bitcoin always has its backers. Fundstrat’s Tom Lee, who has gained fame for his contrarian market calls (which often turn out to be correct), recently said bitcoin will reach $125,000 before the end of the year if the stock market continues to outperform.
A recent survey from the Economist’s Intelligence Unit also found that the pandemic made cryptocurrencies more attractive to investors with 46% of people surveyed believing the case for owning cryptocurrencies is more compelling after COVID-19.
WPR: By now, most everyone is familiar with cryptocurrencies like Bitcoin, which are decentralized. And of course, digital payments have become pretty much ubiquitous. But I think it’s fair to say that the concept of a central bank digital currency has yet to seep into the mainstream. So could you first enlighten us about how China’s new digital currency works – what it is and what it’s not?
Yaya Fanusie: As you said, people are used to Bitcoin and people know a lot about digital payments, because we all pay for things digitally. But a central bank digital currency is something a little bit different. Bitcoin is a decentralized digital currency that no one controls; it’s independent of any government and anyone can participate.
Digital payments, as we know them, basically involve private banking infrastructure where private banks have central bank money, and then they allow you to transact, but it’s really their infrastructure that you’re participating with. So, you have a relationship with that private bank. You don’t really have a relationship with the central bank.
But now, with the advancement of technology, governments see Bitcoin and are expressing interest in it, because Bitcoin solves some interesting problems around how to move value digitally. Central bankers also see that private companies are really involved in people’s commerce and everyday transactions.
This is especially the case in China, which has wanted to figure out a way to have a digital currency that was run by the central bank. So, not like Bitcoin, which is independent and decentralized.
Beijing was concerned about the digital payment space, which you may know is very big in China. The central bank has felt that private digital payment companies are way too powerful. So years ago, they started to think about how they could create infrastructure where the money is actually digital, but it is run by the central bank. Now, what does that look like? We don’t know the details.
In fact, the central bank has been pretty clear that a lot of this is still being worked out. But what we do know the general framework: The People’s Bank of China is going to create the digital currency, and then it’s going to distribute it to banks and to private companies. Those banks and companies will basically have wallets, they’ll have software, and people will transact with the digital currency through those wallets.
But the big difference is that unlike regular digital payments, the thing that they’re transacting with is going to be the central bank money itself, digitally. Not just the applications that they were transacting with through the private companies.
WPR: How far along is China’s digital Yuan relative to similar initiatives in other countries? Because this isn’t something that China is alone in working on, right?
Fanusie: Lots of governments are actually looking at exploring and researching the idea of a central bank digital currency. They’re looking at the pros and the cons, but China is probably the foremost of big economies in terms of actually developing something. They started researching back in 2014, and then roughly a year or so ago, they actually got to the point of doing trials.
What they’ve done over the past few months is they’ve distributed this digital currency via a lottery system to certain citizens in certain cities. And they’ve given them the equivalent of, let’s say, 31 US dollars in the digital yuan, or digital renminbi. They have actually just done these trials – I think it’s maybe half a dozen or more cities that are participating – and I think millions of dollars worth of this currency has transacted over the past few months.
They’ve also taken certain municipal government workers and they’ve allowed them to get some of their salaries paid in this digital currency.
So, I’d say it’s relatively far along, but the key milestone that China is looking at is the 2022 Winter Olympics, which will be held in Beijing next February. The government is saying that they would like to roll out more of this digital currency by then. Not that it will be out universal, but that’s certainly a milestone that they’re looking towards.
WPR: I believe I’ve read some testimonials of people who have been selected for this lottery, and they’ve said that the currency is pretty easy to use and that they like the utility of it so far.
Fanusie: Yeah, I think so. And that’s probably because it’s not that different than mobile payments that they’re already using, since most people in China are not using cash that much. They’re already using digital payments, so it’s possible that for them, it doesn’t make that much of a difference. But for the central bank, it makes a big difference.
You may wonder, if it’s not so different for the consumer, why would the central bank want to do this? Well, the reason is that it’s really about data, and there are a couple of ways to look at this. One is maybe a very positive way, and one is a little bit more cynical.
When you have a central bank digital currency, if you’re a central bank, what this means is that if you create the currency, as people transact, you can actually observe the data. You can have insight as to when people are spending and what’s happening. How much is this currency circulating? What happens when you implement a certain monetary policy? How does that change consumer spending?
The data is available, because people are using the currency that is connected to your infrastructure. In today’s digital payments, that access doesn’t exist. Let’s take an example from the US, with Square or Venmo. All of those transactions are happening, but the government here in the US doesn’t have access to that data immediately. There’s a multilayered process where companies would report back to the government.
But in China, the digital currency is going to allow for a lot more collection of data, which goes with the Chinese Communist Party’s desire to have a more data-driven economy, to collect more data and to use it for monetary policy, but to also to use it for analysis and even surveillance.
WPR: It’s incredible to think about because China’s already such an advanced surveillance state, probably the most advanced in the world. What kind of new data do you think Beijing would be able to collect with this digital currency?
Fanusie: Some of it is new data, but probably most of it is not necessarily new. It is the efficiency of collecting the data. What is different is that we’re talking either real time or near-real time observance of people’s spending. In the current system, obviously the Chinese government is strong, and it can go to companies – and it does – and say, “Hey, show us the transactions of person X, or company X, and hand over this information to us.”
That’s how the government gets its access to financial data now. But what would be different is that the government wouldn’t necessarily have to go to all these different banks and all these different companies to compel them to hand over the information. The payment instrument that people would be using would be within their data house, in a sense.
The Chinese government is now saying that it’s going to anonymize this data, which I wouldn’t take at face value. But even so, the big plus for them is going to be that they’ll be able to see all of these transactions happening, even individual wallets. Whoever is using this, their activity will be seen in at least real time, or maybe relative real time. This is access that doesn’t exist anywhere.
As much as people think about big brother, and they think that they’re always being watched by their government, it’s honestly just not possible technologically for governments to track everyone’s digital payments in real time. because the infrastructure is set up in such a bifurcated way. So this is a huge barrier breaker in terms of collecting financial transaction data.
One thing I should probably also mention is that what this also does is it gives the Chinese government more levers to pull. If the government has access to this digital currency and it’s held with the central bank, you’d be transacting with it, but it’s really a central bank instrument that you’re holding and that you’re transacting in.
If you think a few steps in advance, I think what this means logically is that it would be easier for the central bank to turn off access to that. Right now either the government has to go to companies and say, “Block off this person, close their account.”
But I think the way this is going to work is that they’ll have centralized access. They’ll be able to say, “All these digital Yuan, let’s make them inactive.” Or, “Let’s stop transactions from being able to go into these particular wallets,” or “these particular digital bank nodes are going to be null and void.”
Logically, I think that’s what this infrastructure is going to lend itself to. It then gives the government maybe more power to influence citizens, to take punitive measures and to even look at party members and see exactly how they’re spending. There are lots of implications for domestic control that this technology lends itself to.
WPR: It wasn’t long ago that digital payments and digital currencies were being viewed as maybe one of the best tools to fight corruption in the world, given that with each payment, there was a digital footprint that could be traced. But I don’t remember anyone at the time saying, hold on a second, let’s take a step back and imagine what might happen if one centralized authority is able to collect and monitor all of this data at the same time around people’s payments.
Fanusie: It’s funny, because that sentiment has actually been growing in private circles, especially in the tech community, because of Bitcoin and cryptocurrencies. These decentralized cryptocurrencies are usually public, and all of the transactions can be read and accessed on a public online ledger.
So even though it’s pseudo-anonymous, people can look at a Bitcoin wallet or a Bitcoin address and they can see all the transactions. There’s really no barrier, they just don’t necessarily know who is making the transactions.
For a while, a lot of people have been concerned that if you attach identities to the Bitcoin blockchain, then that could really ruin privacy. Because if you know my address, now you can look and you can see how much I’m spending. You could see how much is in my account. So, there’s actually been a push for privacy within the cryptocurrency community.
What’s interesting is that now that central banks are thinking of a digital currency, even though it’s not going to be public, there is maybe even more of a concern about privacy. If a central bank has a digital currency and all these transactions are on a record, then that central bank could track and maybe see your transactions forever, depending on how you’re going to design this and what privacy safeguards you put in place.
There are all these concerns that the government could have access to someone’s past, present and future transactions, depending on how they design privacy in a central bank digital currency. So, this issue is not going away.