Ignoring the Bigger Picture: US Policymakers' Misguided Focus on the Digital Yuan
US policymakers have been heavily focused on the potential threats posed by China's Digital Yuan (e-CNY), particularly regarding its implications for surveillance and the undermining of the US dollar's dominance in international payments. However, this focus may be misplaced, as it overlooks a more significant and potentially impactful initiative: China's Blockchain-based Service Network (BSN). The BSN is a cross-chain, low-cost, network-of-networks that allows developers to build applications on multiple blockchain platforms at little-to-no cost. It is a joint initiative between the Chinese government and tech giants like Huawei, Tencent, Alibaba, and Baidu.
The digital yuan, while notable as a central bank digital currency CBDC, is narrowly focused on modernizing China's financial system. In contrast, the BSN represents an ambitious effort to build the infrastructure for a new blockchain-based internet that could have wide-ranging applications beyond just payments.US policymakers seem to be reacting defensively to the digital yuan based on exaggerated fears of it displacing the dollar, when they should be proactively engaging with the BSN's potential to reshape the global digital landscape on China's terms.
The BSN's blockchain ecosystem is envisioned to become the key "infrastructure-of-infrastructures" enabling the integration of emerging technologies like cloud computing, 5G, IoT, AI and big data. As a brainchild of the Chinese Communist Party, the BSN is a state-endorsed and controlled blockchain infrastructure. It was spearheaded by China's National Development & Reform Commission in partnership with state-owned companies starting in 2018, with the first applications launching in 2020. President Xi Jinping himself has underscored the importance of blockchain as an essential breakthrough technology for China. The BSN has already integrated with over 36 public blockchain networks including Ethereum, Polkadot, Solana, and others, as well as several permissioned blockchains.
The BSN has rapidly expanded internationally, establishing cooperation agreements with government agencies and enterprises in countries across Asia, the Middle East, Europe and more. Some experts have warned that if blockchain developers in democratic countries help build the BSN, they are constructing the Chinese Communist Party's new internet ecosystem. Domestically, the BSN has deployed in over 20 Chinese provinces and is being utilized by key government departments and institutions. If successful, the BSN could give China a major advantage in the race to develop and deploy blockchain applications across various industries, from finance to supply chain management. This could have significant economic and geopolitical implications, as countries and companies that rely on the BSN may become beholden to Chinese interests.
The BSN represents a far more significant threat to US interests than the Digital Yuan alone. US policymakers' current focus on the Digital Yuan overlooks the broader implications of the BSN. While the Digital Yuan is primarily a financial tool, the BSN represents a comprehensive digital infrastructure that could reshape global technology standards and influence. By concentrating on the Digital Yuan, US policymakers risk missing the larger strategic challenge posed by the BSN. Instead of narrowly focusing on CBDCs like the Digital Yuan, US politicians need to develop a comprehensive strategy for addressing the broader implications of China's blockchain agenda, exemplified by the BSN. This should include:
1. Investing in domestic blockchain research and development to ensure the US remains competitive.
2. Working with allies to develop alternative blockchain infrastructures not controlled by China.
3. Engaging internationally to shape global standards and regulations around blockchain.
4. Educating policymakers and the public about the strategic importance of blockchain beyond just cryptocurrencies.
Focusing solely on the Digital Yuan risks missing the bigger picture and ceding ground to China in the battle for blockchain supremacy. In summary, while the digital yuan deserves attention, an overemphasis on China's CBDC risks obscuring the bigger picture of Beijing's efforts to dominate the global blockchain landscape through projects like BSN. To protect its economic and security interests, the US must develop a proactive blockchain strategy encompassing cooperation with allies, leadership in international standard-setting, and support for blockchain innovation. Failing to do so could seriously undermine America's position in the emerging digital economy.
