Dispatches from the evolving digital political economy

Is De-Dollarization fueled by the rise of Digital Currencies?

Nations, particularly within the BRICS alliance, are increasingly exploring alternatives to the US dollar. The rise of Central Bank Digital Currencies (CBDCs) is playing a pivotal role in shaping the conversation around De-dollarization. The success of China’s digital yuan project, though questionable in terms of adoption rate with e-CNY accounting for a mere 0.16% of China’s M0 money supply, has inspired other member nations to explore CBDCs, with Russia, India, and Brazil set to launch pilots in the coming year. The alliance’s collective move towards a digital currency is likely a signal of a potential challenge to the traditional dominance of specific currencies.

China’s recent success in settling a crude oil trade deal in e-CNY has proved to become a catalyst for broader adoption in the international market. The transaction resurfaced an unsettled debate around the practicality and efficiency of digital currencies. China’s exploration of cross-border applications for the digital yuan is indicative of a strategic effort to expand its influence in the realm of digital finance and perhaps of an increased interest in de-dollarization.

The geopolitical and economic potential of a BRICS alliance around digital currency is substantial, though there are also many obstacles to it. As countries like India and Brazil plan to launch their CBDCs, the landscape of currency competition could undergo a transformative shift. The emphasis on de-dollarization within the alliance suggests a reevaluation of the traditional reliance on the US dollar, potentially paving the way for increased economic autonomy among member nations. However, it currently seems geared more towards developing alternatives to increase the options for means of payments and reducing vulnerabilities arising from economic interdependence.

The trend of de-dollarization is not confined to the BRICS nations alone though. Countries worldwide are exploring digital assets and alternatives to the US dollar. The move towards settling trade in local currencies, as seen in China and Saudi Arabia’s recent agreement, exemplifies a broader global effort to reduce dependency on the US dollar.

As nations navigate the complexities of digital currency adoption, and the extent and scope of de-dollarization, challenges and opportunities emerge. For instance, Argentina’s consideration of replacing its local currency with the US dollar, driven by economic challenges, highlights the importance of trust in the existing currency systems. Additionally, the use of Bitcoin as an alternative, as suggested by Argentina’s president-elect, adds another layer to the evolving narrative of currency dynamics.

The convergence of de-dollarization efforts and the rise of digital currencies initiatives represents a shift of dialogue in the global financial system. The BRICS alliance, along with other nations, is at the forefront of this shift, signaling a potential recalibration of economic power dynamics. As digital currencies continue to gain traction, traditional currencies may face unprecedented challenges and digital alternatives become increasingly integral to the global economic landscape.

Mastercard enters China

China recently decided to allow international payment processing giant MasterCard into its list of bank-card clearing institutions. MasterCard, in a joint venture with NetsUnion Clearing, can now issue yuan-dominated credit cards in China. American Express had a similar breakthrough in June 2020. The entry of MasterCard and VISA into China’s bank card clearing market can have far-reaching implications. These global payment giants bring advanced technologies, expertise, and a vast network of international transactions. Chinese consumers, businesses, and visitors alike can now benefit from a broader range of payment services, increased accessibility, and improved cross-border transactions.

China has historically implemented strict regulations and restrictions on foreign firms entering its financial market, including payment services. There has been a strict regulatory environment for certain tech companies, especially those operating in areas such as social media, e-commerce, and fintech. It is no surprise that the government has imposed restrictions and, in some cases, outright bans to control the influence of these companies. This was often viewed as a protective measure to nurture the growth of domestic players and ensure regulatory control. Foreign firms were traditionally met with skepticism, and collaboration opportunities with domestic players were limited.

The decision to allow international payment networks suggests a different approach in the financial sector. The recent approval of MasterCard and Amex suggests a more streamlined process for market access. While stringent regulatory oversight remains, there appears to be a willingness to facilitate the entry of reputable international players, at least in the payment space. The ban on certain tech companies has often been justified on national security grounds. Concerns about data privacy, surveillance, and potential foreign influence have been key factors in these decisions. The entry of international payment networks has not raised similar national security concerns so far. It will be interesting to see what data protection requirements are raised from these collaborations. The focus currently appears to be more on enhancing the efficiency and global integration of the financial system.

Since these companies are classified to operate in bank card clearing market, it’s likely that PBOC’s administrative measures for such institutions would be applicable here as well. These companies might be required to establish a legal entity in China and obtain the necessary permits to operate. The PBOC outlines a detailed application and licensing process, specifying the information and documentation that applicants need to provide. This includes financial reports, capital contribution resolutions, qualifications of major capital contributors, and plans for internal control systems, AML, and CFT. Mastercard and Amex would need to comply with these requirements during the application process.

This move is made under the recent efforts made by the Chinese government to further its opening-up internationally and supporting the private sector domestically. The low confidence in domestic markets, increasing outflow of international capital, and the opportunity window created by the Xi-Biden meeting in November contributed to a momentum in Beijing to approve central and local level policies to further relax market restrictions for both international and domestic business sectors. For example, the state council recently supported Beijing municipality’s ‘around 170 measures’ of opening up the services sector, including lifting the foreign investment cap on internet access providers, as well as other restrictions in finance, healthcare, and cultural services. Visa-free travel policies were also granted to citizens from Germany, France, and other 4 countries. 

Such momentum for liberization and personnel mobility will likely accumulate, adding some counterweights to the unbalanced policy-making calculation of solely focusing on the national security rationale in the past a few years.

Google’s Removal of North Korean YouTube Channels 

In June, the South Korean National Intelligence Service (NIS) announced the removal of various North Korean state-sponsored propaganda channels from the YouTube platform. These channels, including ‘NEW DPRK,’ ‘Olivia Natasha-Yumi Space DPRK Daily,’ and ‘Song A,’ had been sharing content depicting daily life in North Korea, Korean culture, North Korean films, and scenes from Pyongyang since the beginning of the Covid pandemic. Initially, the NIS asked Korean National Security Commission to block these channels from South Korean internet users; how this was implemented is unclear. After that, NIS strongly urged Google to remove the content from the international viewers in YouTube. In response, a spokesperson from Google stated that they chose to comply with the NIS’s request and take down the channels, citing adherence to U.S. sanctions and trade compliance laws concerning North Korea. While Google’s collaborative content moderation efforts with U.S. authorities are not novel, this particular case of addressing North Korean propaganda serves as a new case study illustrating how the U.S. platform industry engages in cooperation with foreign governments regarding social media content moderation. It also shows how efforts to counter foreign state propaganda can lead to censorship.

The South Korean government has characterized the North Korean channels as integral to North Korea’s soft propaganda campaign, portraying the country as normal, peaceful, affluent, and stable while concealing its actual and contrasting realities. As an illustration, an attractive female vlogger from ‘Olivia Natasha-Yumi Space DPRK Daily‘ showcased luxurious dining and shopping experiences in Pyongyang. Similarly, ‘Song A’ depicted a serene North Korean school life, her affectionate family, and traditions associated with Korean Thanksgiving. The NIS asserted that many scenes in these channels were orchestrated and did not accurately represent life in North Korea. Consequently, the NIS collaborated closely with Google to eliminate these channels, aiming to curb the creation of sympathizers for North Korea worldwide.

From the South Korean standpoint, the removal of social media content and the imposition of limitations on freedom of expression are viewed as lawful responses. This perspective stems from the fact that both Koreas officially designate each other as enemy states, and the absence of a peace treaty following the Korean War which means that the two nations remain legally in a state of war. The National Security Act, established in 1948, specifically allows for the restriction of freedom of expression in cases where certain actions are perceived to support North Korea. These actions include praising the North Korean communist ideology (Juche Idea), venerating Kim Jong-un and his regime, and inciting anti-government or terrorist activities. This legal framework bears similarities to Germany’s laws restricting freedom of expression concerning Nazism and Hitler.

Nevertheless, Google’s compliance with the NIS request raises important questions about free speech. It is essential to note that Google chose not merely to remove specific North Korean propaganda videos but instead opted to delete entire video lists and channels. This decision prompts inquiries into whether sharing Korean culture and cuisine with global viewers is deemed as threatening propaganda. On YouTube, numerous vloggers, both individual and government-affiliated, showcase Korean food, music, films, travel destinations, daily life in Seoul, and other facets of Korean culture. The distinction between these activities and North Korean propaganda videos comes into question. Does South Korea exclusively possess the right to represent Korean culture to the world? It is customary for nations to accentuate their positive aspects while concealing their challenges, a practice Western governments do, too.

Certain open source intelligence experts express apprehensions that restricting North Korea’s access to global social media platforms might exacerbate the country’s isolation, as YouTube channels could serve as a means of communication with the international community. Intriguingly, following the content removal, pro-North Korean TikTok accounts have surfaced, leading South Korean experts to speculate that North Korea may have shifted its platforms from YouTube to TikTok to persist in its propaganda efforts. Given these considerations, there is a sentiment that Google should have targeted specific harmful videos from North Korean channels rather than removing entire channels and their content.

There is no sympathy here for North Korea’s brutal and reprehensible actions, including human trafficking, arms smuggling, cyber crimes, nuclear threats, mass starvation, and concentration camps. However, this condemnation does not negate North Korea’s right to present Korean traditions and culture to a global audience, potentially fostering shared understanding within the international community.