Thread by @JChengWSJ

A thousand years ago, when money meant coins, China invented paper currency. Now the Chinese government is minting cash digitally, in a re-imagination of money that could shake a pillar of American power.
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@jamestareddy @TByGraceZhu It may seem money is already virtual, as credit cards and payment apps like Apple Pay and WeChat eliminate the need for bills or coins. But those just move money around electronically. China is turning legal tender itself into computer code.
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@jamestareddy @TByGraceZhu China’s digital currency is controlled by its central bank, which will issue the new money, giving it new tools to monitor the economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user.
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@jamestareddy @TByGraceZhu That an authoritarian state and U.S. rival has taken the lead with a national digital currency is making a wonky topic a point of anxiety in Washington. Yellen and Powell have said they are studying in earnest whether a digital dollar makes sense someday.
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@jamestareddy @TByGraceZhu Digitization alone won't make the yuan a dollar rival, but it could gain traction on the margins of the international finance system and soften the bite of U.S. sanctions. Ex-IMF staffer: “Anything that threatens the dollar is a national-security issue.”
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@jamestareddy @TByGraceZhu The money itself is programmable. Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump-start. It’s also trackable, making it possible to collect fines as soon as an infraction is detected.
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@jamestareddy @TByGraceZhu In a 2019 Harvard simulation, U.S. policymakers faced a hypothetical N. Korea nuclear warhead funded with digital yuan. Because it could undercut sanctions, the participants, including many now-Biden officials, deemed it more threatening than the warhead.
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@jamestareddy @TByGraceZhu Nicholas Burns, a longtime U.S. diplomat and a favorite to be ambassador in Beijing, told the 2019 Harvard simulation: “The Chinese have created a problem for us by taking away our sanctions leverage.”
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