How China’s Debt Trap Diplomacy will use CBDCs to replace the SWIFT banking system | The Financial Express

How China’s Debt Trap Diplomacy will use CBDCs to replace the SWIFT banking system

Thereby establishing the Digital Yuan as the de facto Central Bank Digital Currency (CBDC) currency to the fastest growing economies in the world.

How China’s Debt Trap Diplomacy will use CBDCs to replace the SWIFT banking system
However, once we start to peel back the onion we can glimpse the inner soul of China’s favorite tool of geopolitical conquest, Debt Trap Diplomacy.

By Samson Williams & George Pullen

China is trapping African nations into debt and as part of “forgiving” that debt China requires them to use the Chinese CBDC the Digital Yuan for all international commerce, trade and finance payments. Thereby establishing the Digital Yuan as the de facto Central Bank Digital Currency (CBDC) currency to the fastest growing economies in the world. Hence another reason why CBDCs are inevitable. 

Chess, Go, Debt Trap Diplomacy and CBDCs

With much fanfare China announced in August of 2022 that they were forgiving billions in debt for 17 African countries. Which on the surface seems like a very kind thing to do? However, once we start to peel back the onion we can glimpse the inner soul of China’s favorite tool of geopolitical conquest, Debt Trap Diplomacy. 

Debt Trap Diplomacy is so straightforward and utterly capitalistic that its simplistic nature is the deception. Generally speaking Debt Trap Diplomacy goes something along the lines of: China lends Angola money to build infrastructure like roads, hospitals and airports. As part of the loan conditions Angola must buy Chinese steel, heavy equipment and in many cases even use Chinese labor to build the project. The result of this is that the majority of the money lent to Angola goes right back to China for goods, products and services; meanwhile Angola is still on the hook for the interest. Through this type of Debt Trap Diplomacy, as of 2022, Angola owes China nearly $90B USD; which costs about $8B dollars a year in interest alone. 

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To be clear Angola isn’t alone. China, through its Belt And Road Initiative and the Asian Investment Infrastructure Bank, formed in 2016 to compete with the World Bank and IMF, has lent out between $4T and $8T USD to over 100 countries who are part of China’s Belt And Road Initiative. If you’re unfamiliar with China’s Belt And Road Initiative, the short story is that China once built the Silk Road, dominating trade from Beijing to London for over 1400 years. The Belt And Road Initiative is Silk Road 2.0 for a digital age. Another example of how China is reconstituting the Silk Road is how China secured a 99-year lease from Sri Lanka. China built the deepwater Hambantota Port in Sri Lanka for $1.2B USD and then in 2017 “forced”/ “negotiated” Sri Lanka into a 99 year lease, after Sri Lanka fell behind in payments to China. Just like that, China secured the Chinese equivalent of America’s Guantanamo, Cuba military base, right next to one of its rivals in the Indian Ocean, India, with a pen. Providing once again the pen is mightier than the sword, especially when combined with the Art of War. 

Whose CBDC will replace the SWIFT banking system?

Having already explained why CBDCs Are Inevitable, we now focus on “Whose CBDC will replace the SWIFT global exchange system?” We honestly don’t know. However, as this game of Global Reserve Currency is digital it’s more akin to Go than chess. With that said, it is doubtful that China will come right out and lay bare its ambitions to not only replace the US/European “West” controlled SWIFT banking system but also replace the US Dollar as the globe’s reserve currency. Fortunately, we need not depend on what China says to determine what its true goals are. 

Just last month in August 2022, China brokered a deal between Russia and India to sell a variety of commodities from Russia to India. That isn’t necessarily interesting news. Yes, it could be tantalizing if we discussed how many of these commodities originated in Ukraine but we’ll skip that political quagmire for now. The interesting news is that the parties agreed to settle the payments in China’s CBDC, the Digital Yuan. This is a monumental shift in use of the Digital Yuan and China’s position as the “trusted agent” to not only Russia but the world’s largest democracy, India. 

What will this mean long term for China’s CDBC and the USD as the globe’s reserve currency? George Pullen, Milky Way Economy’s Chief Economist, sums it up best when he said, “If China pushes digital yuan wallets to all WeChat users and then also requires countries who owe them money to use the Digital Yuan, China can create a market triple times the size and value of the EURO with a push of a button. That would definitely present fundamental challenges to the USD, creating not only de-dollarization but ferenflation concerns.” 

Conclusion

While China may not openly announce its Debt Trap Diplomacy and CBDCs goals, it behooves us all to take a step back and ask, “How would I build a 1000 year dynasty through debt?” In all scenarios the answer to that looks a lot like what and how China is operating. To quote Albert Einstein, “Compounding interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” When it comes to CBDCs China is setting up their digital dynasty to ensure that not only Africa pays them but potentially the entire globe. #CBDCsAreInevitable 

About the Authors

Samson Williams and George S Pullen are founders of Milky Way Economy, a Washington, DC based think tank who specialize in understanding the economic foundations of the Fifth Industrial Revolution and the Space Economy. In addition to writing, researching and being investors in 5th Industrial Revolution companies, Samson and George are adjunct professors at the University of New Hampshire School of Law and instructors at Columbia University in NYC. Additionally, George is a Marine (retired) and guest lecturer at the National Defense University.  

Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.

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