The Digital Asset Olympics

The 2022 Winter Olympics will be not only a competition between athletes, but also a geopolitical sparring ground as it has been in the past. The development of a Chinese Central Bank Digital Currency (CBDC) has been in the works for more than 5 years and some of the more potentially nefarious parts of its implementation are finally starting to come to the fore. In a previous article written in March 2021, we discussed the implications of the launch of a Digital Yuan by the Chinese government before the Beijing 2022 Olympics. In related articles, we have also explored the potential internationalization of a Digital Yuan and the effects of such an event on United States national security. But how has the world’s international stage of sport been an arena for geopolitical campaigns and where does a CBDC tie in?

At the Sochi Olympics in 2014, there was a concerted effort by Russian internal security units to monitor and “listen to” data communications between foreign nationals that had traveled there and their counterparts abroad, utilizing the SORM system. In Beijing 2022, there may well be a similar effort to seize data from the buying patterns and digital interactions of foreign nationals who use the Digital Yuan. From China’s latest moves against international companies that defy their authoritarian policies, it seems that there will be zero tolerance for anyone that attempts to do otherwise. 

Forcing the Hand of International Industry

While many in the US may feel far removed from developments related to human rights or the international economy in China, global organizations like the NBA, McDonald’s, H&M, and the movie industry have had to pay far closer attention to the desires of Beijing in the past. Maybe you’ve heard the latest about bans on the Celtics airing on Chinese television, the pressure the Chinese central government has put on McDonald’s to expand their acceptance of their CBDC, or the treatment of the Uighur people that has led to manufacturing companies shifting their supply chains out of China. But this influence extends across sectors and even affects the movie industry. Many Hollywood productions end up taking some sort of funding from China and rely heavily on box office revenues from the East Asian country. As a result, some of the biggest blockbusters are reworked to incorporate scenes that shed positive light on China or historical events in East Asia. 

These few examples of international companies interacting with the Chinese Communist Party over the years show how some differences of opinion and ideology are coming to a head. Now, with Beijing forcing the hand of McDonald’s in accepting their new digital currency at their >3,700 Chinese locations, we are seeing a new tipping point play out that affects every entity that hopes to continue operations in the 1.4-billion-person market. In this scenario, companies are facing a dichotomy of choice that either forces them to comply with Chinese government wishes, or to leave a large chunk of business in country and take the moral high road. Though this type of economic sparring has often been left to state diplomats in the past, private companies are now going to have to be more convicted in their own version of diplomacy. In fact, over 100 of the world’s largest companies operate in China and are going to have to quickly navigate this difficult moment in strategic relations. A company like Qualcomm, which relies on Chinese markets for 65% of all sales, has particularly complex problems to tackle in the years to come.

Human Rights, Privacy, and Using the Digital Yuan

As we have discussed before, the implementation of the Digital Yuan has significant implications for privacy, human rights, and big data analysis. If China can successfully force the hand of entities and individuals to begin transacting regularly in Digital Yuan, they will be gleaning vast amounts of data that ultimately could be used to scale the currency to the international sphere. While the project is still years off from being launched on the global stage, decisions from major companies and organizations about how to operate in China will begin to shape the next generation of currency use. After all, there is a strong network effect present in using particular platforms related to mobile payments and digital assets – the more people that use them, and the more organizations that accept them, the more beneficial they are for the average person to have access to, leading to widespread adoption.

A Basket of Currencies

No matter what happens in the coming years with the Digital Yuan, one thing is clear – the global economy is moving toward a system that prefers a basket of currencies approach. The US Dollar-based system of the past 80 years has benefitted the American people (and the world) greatly, but the innovation of digital assets has proven a consumer demand and utility for transacting in many different types of currencies. Any company that wishes to operate in China will have to make distinct ethical decisions on how to run their business and appease demands of the central government. In a world where the consumer values human rights, sustainable manufacturing, and responsible operations, it seems that the business case in China is becoming more complex and less about simply reaching a massive consumer market.

At the Beijing Winter Olympics, we will see a concerted effort by China’s central government to roll out the Digital Yuan and impose it on the foreign nationals that are traveling for the games. Their long-term planning and innovation have put them in a position to leverage access to data and show the world that they are leading in digital asset development. Even though they may have outlawed cryptocurrency, they are proving that they can lead and flex their strategic muscles in other ways when it comes to digital assets. This experiment will ultimately provide them a beta-test environment for determining how international citizens interact with their economy, along with why and how they make purchases. This will provide the backdrop for the long-term goal of deploying the Digital Yuan at an international scale.

Statements and views expressed in this commentary are solely those of the authors and do not imply endorsement by Harvard University, Harvard Kennedy School, or the Belfer Center for Science and International Affairs.

Michael B. Greenwald is Director at Tiedemann Advisors and Director for Digital Asset Education. He was the first US Treasury attaché to Qatar and Kuwait, acting as the principal liaison to the banking sector in those nations, while serving in two presidential administrations and under three treasury secretaries from 2010-2017. He is a fellow at Harvard Kennedy School’s Belfer Center for Science and International Affairs, a Senior Fellow at the Atlantic Council Geoeconomics Center, and Adjunct Senior Fellow at Center for New American Security. 

This article is supported by research advisor Logan Weber. Weber is a graduate of Harvard University and graduate student at Texas A&M University studying International Affairs.