From the Notebook: The Digital Yuan, Proof of Guns, and the Expiration of Money


by Tom Luongo, Tom Luongo:

One of the things that converted me to the Austrian way of thinking about the economy was the concept of money with an expiration date.  Early articles at and covering hyperinflations of various forms and kinds horrified me when banknotes and government scrip reached the point of forcing people to spend money versus having it lose its ‘legal tender’ status.

Money that ‘expired’ like points on your credit card was simply a horrifying idea.

Martin Armstrong makes the point all the time that the main reason why the U.S. dollar is the world’s reserve currency is because it is the only modern government-issued currency that hasn’t been defaulted on in over two hundred years.


In fact, it was the consolidation of the Colonial government debt held over from the Revolutionary War which ultimately doomed the government under the Articles of Confederation giving rise to the current U.S. constitution and its monopoly power to issue dollars.

That power gave the Constitution its power as an international player, telling the world the new government honored its debts. The inability of the ECB today to control the debt issuance of the euro-zone states is that currency zone’s fatal flaw and why any move towards consolidation of that power is the goal of all EU fiscal and EU monetary policy.

Absent that the EU is doomed to the same fate as the Articles of Confederation.

Fast forward to today with the world awaiting the birth of the first Central Bank Digital Currency (CBDC), the Digital Yuan from China, and we see the concept of expiration being embedded directly into what looks like the next monetary system planned for us.

We’ve come full circle, folks.

From Zerohedge came this great article going over most of the concerns anyone should have about a digital Yuan.

Fast forward a few months when China’s preparations to rollout a digital yuan gathered pace, and we reported in October that China was poised to give legal backing to the launch of its own sovereign digital currency, “cementing its trailblazer status in virtual currencies far ahead of other countries, after already recently experimenting with large-scale trials of actual payments by consumers, which was met with mixed results.” Specifically, the South China Morning Post reported that “The People’s Bank of China published a draft law on Friday that would give legal status to the Digital Currency Electronic Payment (DCEP) system, and for the first time the digital yuan has been included and defined as part of the country’s sovereign fiat currency.”

There are plusses and minuses to everything about the digital yuan.  From China’s perspective it gives them a currency which can easily bypass the U.S.’s control over the flow of U.S. dollars while giving China much more control over capital inflows into the country and the terms under which it can come in.

With tensions rising between the U.S. and the Russia/China/Iran axis all three of these states are making profound moves to insulate themselves from aggressive dollar diplomacy. Today’s announcement of new, sweeping sanctions against Russia not just targeting diplomats and members of the government but limiting access to Russia’s sovereign debt greatly accelerate these tensions.

As expected the White House and Treasury’s actions against Russia today are sweeping and have some serious teeth, with the US expelling ten of its diplomatic personnel from the Russian Embassy in Washington, which is said to include intelligence officials.

Further, the US will ban American banks from buying new Russian sovereign debt starting June 14. The White House fact sheet detailing the Biden executive order’s multi-layered action details:

Russia, for her part, has already announced plans to ban MasterCard and Visa from use there. They, like China, already have a homegrown analog to the U.S.-controlled SWIFT system for international payments and are as well exploring the development of a digital ruble.

The digital yuan, which has already cut a deal with SWIFT to provide a bridge between them, will however, be used for far more than just evading U.S. sanctions so international trade can continue.

A CBDC is a digital token issued directly by the central bank with holders of the tokens being tied directly to the central bank. There is no ‘going outside that system’ because there will be no physical cash equivalent.

So, this is a completely trackable credit system that can come with, you guessed it, an expiration date to perform Keynesian (really Samuelsonian) fiscal stimulus whenever the ruling class feels there’s too much paradox of thrift happening.

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