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We, like most publications, have spilled much ink debating whether America’s influence in the world is declining. Turns out we wasted our time because here, in eight words, we have our definitive answer:
From artery-clogging snacks and overbearing capitalism to militaristic tropes and half-time celebrity orgies, there is nothing more American than the Super Bowl. But just as the sacking of Rome in 410AD marked the start of fall of the Roman Empire, might Tom Brady’s yawn-inducing 7th Super Bowl ring mark America’s decline?
Probs not, but that’s still a great tweet.
🧧 China is developing a new centralised digital currency - what does that mean?
💲 Saudi Arabia and the business of wars - what happens now that the US has stopped arms sales?
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🧧 China's new digital currency
Last December, China conducted a large pilot test of its planned Central Bank Digital Currency (CBDC) across four major cities. The trial involved giving away digital currency to citizens and then monitoring how they spent it (we imagine sales of Viagra and pornography plummeted).
By the end of 2021, there is a high chance that China will have launched its digital currency nationwide, just in time for the Beijing-hosted Winter Olympics.
China's payments ecosystem
Chinese society is almost cashless. Four of every five payments are processed by Alipay or WeChat Pay, China’s two tech unicorns that offer digital wallets.
From the largest department store in Shanghai’s glitziest shopping district to a fruit seller in a rural market in far western Gansu, all will accept electronic payment via QR code:
That's important. For a digital currency to be successful you need:
high smartphone and internet penetration
behavioural acceptance and public trust of digital transactions
widespread adoption of the backend payments infrastructure by businesses
*From 2015-2019, we can count on one hand the amount of times we paid for things in China with cash. Losing your phone - not your wallet - was the nightmare scenario on a boozy night out.
How is this different to bitcoin?
The underlying blockchain (distributed ledger) technology and digital wallet system will likely be similar to Bitcoin, depending on how a CBDC is designed. Snooze.
The main difference is really that a CBDC is issued and managed by the state, in the same way that paper money is. From the state's perspective, CBDCs have all the benefits of paper money and cryptocurrencies, but with none of the downsides:
✅ Allows a comprehensive overview of every financial transaction, giving real teeth to anti-money laundering and 'Know Your Customer' laws
✅ Allows a central bank to have far better and more timely data about macroeconomic metrics like money demand, supply, and velocity
✅ Reduces the costs of printing and managing paper money (managing the Euro is estimated to cost 0.5% of Eurozone GDP!)
✅ Could promote financial inclusion as a CBDC allows participation in the payments system without need for a private bank account
From a citizen's perspective, the story is mixed:
✅ Governments are likely to ensure high levels of security and consumer protections to drive adoption of CBDCs
✅ Convenience and accessibility of payments would be greatly increased (also for businesses)
✅ CBDCs will be actual 'means of exchange' and largely non-speculative, unlike the roulette table of cryptocurrencies
❌ The serious drawback is privacy - governments would be able to monitor every payment a person makes, including full purchase and location data
*The implications of zero-privacy are more than just exposing your appalling habits. The Chinese social-credit system gives an example of how governments can harness ‘data exhaust’ to shape the behaviour of citizens.
Why is China rushing to develop a digital currency?
🏛 Economic control
When technology of any kind threatens to usurp or displace the existing source of political power, autocracies are the canary in the coal mine
So imagine the panic in Zhongnanhai (China's 'White House' or 'Downing Street') in 2019 when Facebook announced plans to develop its own digital currency called 'Libra' (we prefer ZuckBucks).
With 2.8 billion active users, Facebook could create its own transnational economic ecosystem, giving it immense economic power while diminishing the economic control of nation states. It wasn't just China that got spooked by this; shortly thereafter, the US asked Facebook to halt development on Libra.
The same is true of decentralised cryptocurrencies - like Bitcoin or Dogecoin (such crypto!). They present an existential risk to central governments if allowed to become mainstream.
In fact, we can expect private cryptocurrencies to become heavily regulated or banned once CBDCs are up and running (China has already banned initial coin offerings).
Sanctions work because the USD is the global reserve currency, and because the US has considerable power over SWIFT (the protocols underpinning international payments). Most transactions in the world 'touch' US soil and are thus subject to US jurisdiction.
If countries can develop their own digital currencies, there would be no need for any intermediary to facilitate international payments. Iran could theoretically pay Russia for weapons with a smartphone and no one would be any the wiser.
Payment ecosystems are powerful geopolitical tools. The US has been able to impose sanctions on others because it largely controls global payment systems.
CBDCs could change all that, for example:
Nation X builds its own CDBC
It then encourages other nations within its orbit to adopt it (perhaps another country significantly indebted to Nation X)
The result is an ecosystem of international payments controlled by and entirely visible to the People's Bank of Nation X and insulated from US influence
Further, the benefits to being a first mover on CBDCs are obvious. Whoever's CBDC is available first will have the power to shape the political values behind the currency. It is intriguing then that the US has been uncharacteristically silent on the issue.
What next for CBDCs?
We might reflect on 2021 as the year CBDCs became mainstream. The combination of:
cryptocurrencies and private digital currencies threatening central government control
+ domestic and political benefits of a national CBDC
+ the enormous first mover's advantage
= a mad rush to develop national digital currencies in the short term. In the medium term, a majority of economic activity will occur via CBDCs.
It's hard to overstate the impact CBDCs will have on governments, businesses, and citizens. It looks like we can add them to the growing list of reasons why the next decade will be one of the most unpredictable yet.
💲 Saudi Arabia, Yemen, and the business of wars
With Trump no longer a topic fixture on late-night talk shows, it’s been harder to keep up with US foreign policy. Without the simplified soundbites of US policy we'd grown accustomed to, we’re left on our own to translate Diplomatic Speak.
For example, the latest from President Biden: ‘US-something-course-correct-something-global-posture-something-underscores-dormant-peace-resolution.’ 🥴
Translated: the US will stop selling some of its offensive, military-grade weapons to Saudi Arabia.
Why is this important? Because those weapons won’t be used in Saudi Arabia’s war with Yemen, a war that the United Nations has described as the ‘world’s worst humanitarian crisis’.
💣 How Saudi Arabia entered the Yemeni civil war
Yemen descended into civil war in late 2014, after Yemeni rebel group, the Houthis, ousted President Hadi and his government for a bunch of economic and political grievances.
To fight the Houthis, President Hadi asked for military support from his allies. First on his call list was neighbouring Saudi Arabia. In March 2015, Saudi Arabia led a coalition of other Arab countries to join the war under the codename ‘Operation Decisive Storm’.
Turns out that was a very misleading name - the operation has been anything but decisive.
Six years on, the initial intervention against the rebels has reached a stalemate, with the Houthis still in control of Yemeni capital, Sana'a. The conflict in Yemen has also metastasised into a proxy war between Saudi Arabia and Iran (Iran backs the Houthis rebels).
The conflict has now killed more than 100,000 people, displaced 4 million, and left an estimated 24 million Yemenis in dire need of humanitarian help.
Both the Houthis and the Saudi coalition have been slammed by international human rights groups for illegally, indiscriminately, and disproportionately targeting civilians during the war – aided by the gruesome capabilities of modern weapons.
💰The global weapons trade: a lucrative business
As the situation has worsened, countries supplying weapons for the war have copped criticism for their complicity. In response, Norway, Finland, the Netherlands, and Germany reviewed or stopped their arms sales to the Saudi coalition.
Others, such as the US, continued selling arms to Saudi Arabia. This isn’t all that surprising considering that Saudi Arabia is pretty important to US interests: it’s a vital oil producer, G20 member, and almost all US geopolitical and economic policy in the Middle East must have Riyadh’s involvement.
Saudi Arabia is also the US’ largest foreign military sales customer. Since 2002, the US has delivered over US$34 billion in arms to Saudi Arabia (the equivalent of nearly two US-Mexico border walls), including US$5 billion in 2019 alone.
The US isn’t the only country selling arms abroad: the global weapons business is worth US$3 trillion per year. And in real terms, that's worth almost as much as Google, Apple, and Microsoft combined.
The US ranks as the world’s top arms exporter, totalling 36% of global exports and selling an average of US$143 billion in arms annually.
🕊 So, are weapon sales good for world peace?
The opposing arguments to this question usually go something like this:
Selling arms is a tool for strengthening the military capability of weaker allies
It increases stability in conflict-prone regions because weapons will deter others from starting war with said ally
Economic motives often dictate decisions for weapons sales. Weapons manufacturers argue that more weapons sales = more domestic jobs
Sellers cannot control where the weapons go, and some arms end up lost, stolen, or in the hands of terrorist groups
In reality, 'realpolitiks' (practical considerations) plays a huge role in international affairs. Those countries with bigger weapon arsenals do frequently deter others from initiating conflict.
So, there's certainly an argument to be made for weapons sales delivering peace and stability in the short term, even if the long-term impacts are dubious.
Biden’s move to restrict offensive arms sales to Saudi Arabia won’t stop the war overnight, but it will go a long way towards limiting damage if combined with less full-throttled US military support.
Some other takeaways from Biden’s restriction of arms sales:
The move signals a return to ‘moral’ and responsible leadership by the US, and could pressure other countries such as the UK to stop supplying arms to Saudi Arabia.
This has put Saudi Arabia and Crown Prince Mohammed bin Salman (MBS) on notice that any future shady dealings and human rights abuses are unlikely to be tolerated.
Might this move deter multinational corporations from doing business with Saudi Arabia? We think not. The recent success of Saudi Arabia's annual investor conference (aka the ‘Davos of the Desert’) certainly suggests that investors go where the money is, human rights breaches or otherwise.
➕ Extra intrigue
Denmark announced plans to build the world’s first artificial, renewable energy island that could deliver electricity for millions of households. We get it Scandinavia, you’ve got your s*** together.
Cuba will allow private businesses to function in most sectors, aiming to boost its state-controlled economy after its sharpest decline in almost three decades.
China has banned the social media app Clubhouse after uncensored political discussions between Uighurs, Taiwanese, Mainland Chinese, and journalists grew in popularity. Some reports suggest the government was waiting to ‘uncover the snakes’ before locking down the app.
Germany and Turkey agreed to discuss Turkey’s unauthorised gas drilling off the coast of Greece. It’s a positive sign, as the EU had previously sanctioned Turkey for the drilling.
🔎 Intriguing recommendations
👩🦱 Helen: After all the talk of war in this issue, you might want to know there's another one raging globally between Millennials and Gen Z. According to Gen Z, these things are officially out:
this emoji: 😂
and (gasp) Harry Potter.
Basically me, deconstructed. Absolutely savage. (NB: I'm now sporting a middle part.)
👴 John: The pandemic has given us all a lot of time to think. Too much time to think. I came across this lovely little animated short about fighting the Sunday Scaries. It resonated, and the animation is gorrrr-jus. Ugh, some people are so talented.
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