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China’s Challenge & the Digital Dollar

Frederick Kempe

Chinese officials have made it no secret that their greatly accelerated efforts at introducing and distributing the digital yuan are an opening move in their long-term strategy to undermine the dollar’s global supremacy and expand their influence.

Despite that, leading US financial officials have rolled their eyes at any suggestion that deeper dangers lurk for the dollar, and thus also for US national security, in the global digital currency race. Even as China marches forward and bitcoin’s market value reaches one trillion dollars, the US Federal Reserve had been in no hurry to be a contestant.

Until now.

This week marked a public turning point for the most significant US government officials engaged in international finance—Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell. Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center, tweeted that it marked “the firing of a starting gun.”

At a New York Times event on Monday with Yellen, a question from CNBC’s Andrew Ross Sorkin prompted the Treasury Secretary’s most full-throated encouragement yet of a digital dollar, or Central Bank Digital Currency (CBDC). Though Sorkin called Yellen’s attention to an Atlantic Council survey with Harvard’s Belfer Center, which shows that seventy countries are now exploring digital currency, Yellen’s focus was instead on the domestic good a digital dollar could do for Americans.

“I think it makes sense for central banks to be looking at it,” said Yellen.

“I gather that people at the Federal Reserve Bank of Boston are working with researchers at [the Massachusetts Institute of Technology] to study the properties of it. We do have a problem with financial inclusion. Too many Amer-icans really don’t have ac-cess to easy payment syst-ems and to banking acco-unts. This is something that a digital dollar, a central bank digital currency, could help with. And I think it could result in faster, safer, and cheaper payments.”

In congressional testimony a day later, Powell also broke new ground, calling the digital dollar “a high priority project for us.” He added, “We are committed to solving the technology problems, and consulting very broadly with the public and very transparently with all interested constituencies as to whether we should do this.”

Yet while the Fed consults, China executes.

Neither Yellen nor Pow-ell mentioned China’s gro-wing lead in digital currency development, yet that was the context. Their call-to-action coincides with China’s announcement earlier this month of a significant partnership with the European-based cross-border payment system SWI-FT, removing all doubt that Beijing intends to internationalize the digital yuan.

At the same time, China has concluded a free trade agreement (FTA) with Mauritius, its first with an African country, in a deal that is designed to create a digital financial testing ground. “As China evolves its digital currency plans, it may ultimately be Mauritius that leads in this area for Africa,” write experts Lauren Johnston and Marc Lanteigne for the World Economic Forum. The FTA agrees to promote “the development of a Renminbi clearing and settlement facility in the territory of Mauritius.”

This all comes as Beijing authorities took advantage of Chinese New Year celebrations on February 12 to deploy three large-scale pilot projects to distribute digital yuan worth roughly $1.5 million in “red packets” with about thirty dollars each. Then this week, China expanded its testing program of digital currency handouts to the city of Chengdu, the capital of Sichuan province and the fifth most populous city in the country, where it is distributing some six million dollars in digital yuan.

China’s ambition appears to be laying the groundwork now for the digital yuan’s coming out party at the end of 2022 at the Winter Olympics in Beijing. The speculation is that Chinese organizers might require that all attendees and athletes download an app that would ensure all their payments at the games for hotels, tickets, food, souvenirs, and more are conducted in its new, digital currency. Even if one does not experience a physical boycott of China’s Olympic games, watch for digital boycotts by the United States and other teams.

It is hard not to compare China’s current lead in digital currency development, shrugged off by US officials until now, to its early global lead in developing the 5G standard. Until the Trump administration responded alongside Western manufacturers, no one could compete with Chinese 5G providers and equipment manufacturers globally, the most dominant among them being Huawei.

China’s consistent prioritization of technological a-dvancement underscores its recognition that throughout history the country that has taken the technological hi-gh ground in its era has m-ost often also been the do-minant international actor.

If the United States loses the high ground of financial technological innovation, combined with a weakening of the dollar’s global dominance, the benefits for Beijing would be considerable.

China’s different approach to privacy provides it a competitive advantage. The US and European need to satisfy privacy concerns will complicate CBDC development. Conversely, Beijing sees the digital yuan as a way to further strengthen its already formidable surveillance state, while also improving its ability to combat money laundering, corruption, and terrorist financing.

In a newly released paper published by the Center for a New American Security (CNAS), authors Yaya J. Fanusie and Emily Jin capture how deeply China understands the geopolitical importance of its digital currency project. They relate how Yao Qian, the former head of the People’s Bank of China’s Digital Currency Research Institute, compared China’s digital currency progress to the country’s previous advances in robotics, big data, and artificial intelligence.

Speaking before a United Nations information technology conference, “Yao posited digital currency as part of ‘the Next War,’” write the authors, referring to an article of that title in the Economist that discussed technology’s central role in US-China competition.

The Fed worries about being too hasty in introducing a digital dollar, given the stakes as the world’s reserve currency. The greater geopolitical danger, however, is how quickly the Fed is falling behind.

The United States can still win this contest if it not only quickly develops a digital dollar, but also collaborates on the creation of a digital euro, a digital pound, and a digital yen. The total firepower of these currencies would close the innovation gap quickly. It would also demonstrate the value of working with allies, a centerpiece of US President Joe Biden’s foreign policy.

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Trump set to return to the spotlight with CPAC speech

ORLANDO (AP): Less than six weeks after leaving office, former President Donald Trump will deliver the closing speech at a conservative conference Sunday as he reasserts himself on the national stage and makes clear he intends to remain a dominant force within the Republican Party.

Aides say Trump will use the speech at the Conservative Political Action Conference to blast his successor, President Joe Biden, and try to cement his status as the party’s undisputed leader going forward despite his loss in November.

“I stand before you today to declare that the incredible journey we began together four years ago is far from over,” Trump will say, according to excepts of his speech released by aides. “We are gathered this afternoon to talk about the future — the future of our movement, the future of our party, and the future of our beloved country.”

The event so far at a Hyatt hotel in Orlando, Florida, has been a tribute to Trump and Trumpism, complete with a golden statue in his likeness. Speakers, including many potential GOP 2024 hopefuls, have argued the party must embrace the former president and his followers, even after the deadly insurrection at the Capitol on Jan. 6. They stand in opposition to others who argue the party must move in a new, less divisive direction after Republicans lost not only the White House but both chambers of Congress in the last elections.

“The least popular (leaders) in our party are the ones who want to erase Donald Trump and Donald Trump’s supporters from our party,” said Rep. Jim Banks of Indiana, the chair of the conservative Republican Study Committee, during a Saturday panel discussion. “And let me tell you, if that happens, we won’t win back the majority in 2022. We definitely won’t win back the White House in 2024 if we erase Donald Trump.”

On Biden, Trump is expected to deliver a sharp rebuke of what he will frame as the new administration’s first month of failures, including Biden’s approach to immigration and his decision to halt construction of Trump’s southern border wall, his foreign policy posture and his handling of the economy as the country continues to grapple with the coronavirus pandemic.

“Joe Biden has had the most disastrous first month of any president in modern history,” he will say.

It is highly unusual for past American presidents to publicly criticize their successors so soon after leaving office. Ex-presidents typically step out of the spotlight for at least a while; Barack Obama was famously seen kitesurfing on vacation after he departed, while George W. Bush said he believed Obama “deserves my silence” and took up painting.

White House press secretary Jen Psaki brushed off the expected criticism. “We’ll see what he says, but our focus is certainly not on what President Trump is saying at CPAC,” she told reporters.

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Trilateral working group meeting on Nagorno-Karabakh will be held today

F.P. Report

MOSCOW: Russia’s Dep-uty Prime Minister of Ru-ssia Alexey Overchuk has announced that the next meeting of the trilateral wo-rking group (Russia, Azerb-aijan, Armenia) on Nagor-no-Karabakh at the level of deputy prime ministers will be held on March 1 in a video conference mode.

Mentioning the date, he stated that “The parties agreed to hold the next meeting of the working group via a videoconference on March 1, 2021.”

According to the Deputy Prime Minister, during the meeting, it was recommended to take an inventory of international treaties on transportation concluded within the CIS and international treaties concluded with third countries.

Overchuk noted, that the working group decided to finalize the draft report, envisaged by the leaders’ statement of January 11, 2021.

It should be noted that in the recent meeting, the parties discussed the implementation of agreements on transport and economic relations concluded between the leaders of Russia, Azerbaijan and Armenia, Vladimir Putin, Ilham Aliyev and Nikol Pashinyan, Overchuk also underlined added that “At the meeting, the guidelines of joint work, arising from the implementation of paragraph 9 of the statement of the President of Azerbaijan, the Prime Minister of the Republic of Armenia and the President of the Russian Federation dated November 9, 2020, as well as paragraphs 2, 3, 4 of the statement of January 11, 2021 were considered.”

While giving out more details, he further added that “The parties discussed the reports of the expert subgroups on rail, road and combined transport, as well as on the aspects of control such as safety, border, customs, as well as sanitary, veterinary, phytosanitary and other types of control.”

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Head of AEO of Iran: We will respond if IAEA Boards adopts negative resolution

TEHRAN (Agencies): Tehran will respond appropriately in case the Board of Governors of the International Atomic En-ergy Agency (IAEA) issues a resolution against Iran for suspending the implementation of the Additional Protocol that allowed the IAEA to carry out short-notice inspections, says the head of the Atomic Energy Organization of Iran (AEOI).

“If the Board of Governors [of the IAEA] adopts a resolution against Iran, we will show an appropriate reaction,” Ali Akbar Salehi said on Sunday on the sidelines of a meeting of the Parliament’s Committee on National Security and Foreign Policy, just a day before the IAEA’s governing board is supposed to convene for a session on Iran on Monday.

Iran’s nuclear chief further added that Tehran has sent a letter to the nuclear watchdog, informing the international body of this issue.

Iran has stopped its voluntary implementation of the Additional Protocol under the Strategic Action Plan to Counter Sanctions, a law passed in December by the Parliament.

According to the move, any footage recorded by cameras at Iran’s nuclear sites will no longer be shared with the IAEA, but will be retained by Iran for three months, after which they will be permanently deleted if the US sanctions are still in place.

The IAEA Board of Governors is slated to convene its regular March meeting today (Monday) to discuss a range of issues, including its verification and monitoring activities in Iran and the NPT Safeguards Agreement with the country, according to the UN nuclear watchdog’s website.

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Iran summons Turkey’s ambassador

TEHRAN (Agencies): Iran has summoned Turkey’s Ambassador Derya Ors to protest the Turkish interior minister’s “unacceptable” claim about the presence of the Kurdistan Workers’ Party (PKK) militant group’s members in the Islamic Republic.

The Turkish envoy was called in on Sunday and notified of the protest.

The Iranian ministry called on the Turkish government to take “serious” measures to prevent the infiltration of terrorist groups through the Islamic Republic’s borders.

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Buffett eyes slow US progress, but says “never bet against America”

WASHINGTON DC (Axios): Warren Buffett called progress in America “slow, uneven and often discouraging,” but retained his long-term optimism in the country, in his closely watched annual shareholder letter released Saturday morning.

Why it matters: It breaks months of uncharacteristic silence from the 90-year-old billionaire Berkshire Hathaway CEO — as the fragile economy coped with the pandemic and the U.S. saw a contentious presidential election.

What they’re saying: “We retain our constitutional aspiration of becoming ‘a more perfect union.’ Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so,” Buffett wrote.

“Our unwavering conclusion: Never bet against America.”

Of note: Buffett said Berkshire’s annual meeting — long an Omaha, Nebr-aska-based event that typically draws thousands of s-hareholders — will be held in Los Angeles this year.

It will be virtual again, as it was last year.

Buffett, who has received both doses of the vaccine, said he hopes to convene the in-person event in 2022.

Other highlights from the letter:

On the bond market: “Bonds are not the place to be these days … Fixed-in-come investors worldwide – whether pension funds, insurance companies or ret-irees – face a bleak future.”

On economy: “Despite some severe interruptions, our country’s economic progress has been breathtaking.”

On energy: “[O]ur country’s electric utilities need a massive makeover in which the ultimate costs will be staggering.”

Other details: Buffett’s letter came alongside financial results for his sprawling business empire, which owns GEICO, BNSF Railway, Dairy Queen and more.

Soaring prices in the company’s stock bets — including its 5% stake in Apple — helped overall profit.

But operating profit — which excludes those gains — came in at $21.9 billion for 2020, a 9% decline from the previous year.

Between the lines: Berkshire Hathaway has increasingly bought back more of its own stock in recent years — with hints of more to come.

It spent $24.7 billion in 2020 on share repurchases, a record for the company.

On buybacks, Buffett borrowed a line from late Hollywood star Mae West: “Too much of a good thing can be … wonderful.”

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Saudi-led coalition destroys rebel drone from Yemen

RIYADH (AA): The Saudi-led coalition in Yemen said Saturday it had intercepted an explosive-laden drone fired by Houthi rebels towards Saudi Arabia.

“Coalition forces managed to intercept and dest-roy an unmanned explosive-laden drone launched by the Houthi militia tow-ards Khamis Mushait city” in southern Saudi Arabia, coalition spokesman Col. Turki al-Maliki, said in a statement cited by the Saudi SPA News Agency.

Al-Maliki said the Houthis targeting of civilian areas amounted to “war crimes”.

There was no comment from the Houthi group on the report.

Yemeni rebels regularly announce rocket and drone attacks on Saudi territories, saying they are a reaction to the Saudi-led coalition’s assault on Yemen.

On Friday, the coalition said it had intercepted two drone and missile attacks by the Houthis on Saudi Arabia.

Yemen has been wracked by violence and instability since 2014, when Houthi rebels captured much of the country, including the capital Sanaa.

A Saudi-led coalition aimed at reinstating the Yemeni government has worsened the situation, causing one of the world’s worst man-made humanitarian crises with nearly 80% or about 30 million of its people needing humanitarian assistance and protection and more than 13 million in danger of starving to death.

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US SC again OKs indoor church services in California amid pandemic

Oriana Gonzalez

WASHINGTON DC: The U.S. Supreme Court ruled that five California churches in Santa Clara County are exempt from a health directive prohibiting indoor gatherings, and are now permitted to resume services indoors.

Why it matters: The late Friday action is the latest in a string of orders directing state and local governments to whittle down public-health orders intended to stop the spread of the coronavirus.

Details: In a one-paragraph, unsigned order, the court cited an earlier decision in which it excluded religious services from statewide regulations banning most indoor gatherings.

The Supreme Court’s three liberal judges — Elena Kagan, Stephen Breyer and Sonia Sotomayor — dissented.

Context: Santa Clara County claimed its restrictions on indoor worship remained valid because they were part of a broader ban on gatherings at religious and secular facilities, including “political events, weddings, funerals, worship services, movie showings, cardroom operations.” Other indoor operations, such as shopping malls, were allowed at 20% capacity.

Five churches contested that order, saying it conflicted with the Supreme Court’s ruling, but a federal appeals court in San Francisco declined to block the restriction.

Of note: The county said on Feb. 25 it planned to ease restrictions starting the following week due to a decline in coronavirus cases, per Bloomberg.

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Russia searching for Israeli spy’s remains in Syria

LONDON (Agencies): Russia is working to locate the remains of Israeli spy Eli Cohen in order to repatriate them to Israel, according to a report on Saturday in the London-based Arabic-language news website Rai al-Youm.

According to the report, Russian soldiers, in coordination with Syria, have been searching for Cohen’s remains in recent days in a cemetery located in the al-Yarmouk refugee camp, near Damascus. The report says that the bones, if found, will be returned to Israel as part of a deal, but there was no indication of what Israel would be giving in exchange.

Russia has been serving in recent years as a conduit between Israel and the Assad regime, due to its deep involvement in Syria.

Two years ago, Russia was the intermediary in the return of the remains of Zecharia Baumel, an Israeli soldier who was killed in the Sultan Yacoub battle during the first Lebanon war, in June 1982. The remains were reportedly found in the al-Yarmouk cemetery and transferred to Russia, from where they were sent to Israel in April 2019, a few days before an election.

In January 2020, Israel announced that it had released two prisoners, residents of the Golan Heights town of Majdal Shams. One had been a spy for Syria.

According to the Prime Minister’s bureau, the two were released after Baumel’s remains had been returned, “as a diplomatic move and a goodwill gesture.”

Russia also recently the return of an Israeli woman who had crossed the border into Syria in early February.

According to foreign reports, Israel committed in exchange to purchase hundreds of thousands of doses of the Russian-made Sputnik V vaccine.

These will be delivered to the Syrian government. In addition, Israel revoked a community service penalty on a Druze woman from the Golan Heights, as well as returning two shepherds to Syria.

Eli Cohen, seen as the greatest Israeli spy ever to have operated in any Arab state, immigrated to Israel in 1957 after being deported from Egypt, where he was born and lived until then.

In 1959 he was recruited to Unit 188 of the Israel Defense Forces, which dealt with operating agents, gathering intelligence and special missions in enemy countries. In 1961 Cohen was sent to Argentina to establish a cover story as an Argentinian of Syrian descent called Kamel Amin Thaabet. At the end of that year he was sent to Europe to bolster his cover story as the representative of a Belgian company, who was dispatched to Syria.

In January 1962 Cohen came to Syria for the first time and settled in Damascus. He forged close ties with many senior Syrian officials and obtained detailed intelligence on the Syrian army and its activity, until he was captured in 1965 by Syrian security forces in Damascus.

He was subsequently sentenced to death, and executed by hanging on May 18 of the same year.

His body was left hanging for seven hours in a Damascus square before being taken to an unknown burial site.

Israel asked to have his bones returned several times during negotiations with Syria during the 1990s and during Prime Minister Ehud Olmert’s tenure in 2007-2008. Israel has also contacted Russia in the last decade over repatriating his remains.

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Iran reports internet disruption following anti-govt protests

Oriana Gonzalez

WASHINGTON DC: The southeastern region of Iran on Saturday reported internet disruptions following demonstrations against Monday’s fatal border shootings, AP reports.

The big picture: Iran has a history of suppressing freedom of speech, association and assembly, according to Amnesty International. Internet blackouts are now common around the world when power hangs in the balance, Axios’ Dave Lawler and Sara Fischer write.

Details: The Iranian government shut down the mobile data network in Sistan and Baluchestan — where the vast majority of the population accesses the internet by phone — for three days starting Wednesday. Residents said the internet had been restored by early Saturday, per AP.

What they’re saying: “This is Iran’s traditional response to any kind of protest … Shutting down the internet to block news and pictures getting out makes (authorities) feel more comfortable opening fire,” Amir Rashidi from Miaan Group, a human rights organization focused on digital security in the Middle East, told AP.

Context: Protests in the southeast region earlier this week “over the shootings of fuel smugglers trying to cross back into Iran from Pakistan on Monday” left at least two people dead, AP writes.

There are still no official reports of how many people have been killed or injured by law enforcement, according to Iran Human Rights Monitor, a group dedicated to calling attention to human rights violations in Iran.

Flashback: Iranian authorities in 2019 implemented a near-total internet shutdown during protests to prevent people from sharing images and videos of the lethal force used by law enforcement against anti-government demonstrators who were protesting a rise in fuel prices, per Amnesty International.