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Digital Yuan: China’s Currency is Going International

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by Kumar David

Though paper money was invented in China during the Song Dynasty in the 11th century it is fast phasing out in consumer transactions; about 80% of payments in China use mobile payment modes meaning cell phones or computers and the market size in 2020 was $6.2 trillion-equivalent in US dollars. Wechat, Alipay and Unionpay are the most used platforms. Some beggars in big cities will not accept alms in cash; you gotta scan their QR codes, enter the donation into your mobile phone and press Transfer. But then begging is dying out in China while homelessness is growing in the USA, so it’s all happening in the wrong place.

How topsy-turvy the world has become! No wonder then that the government is exploring and expanding digital transactions linked to the central bank (People’s Bank of China) and also for international payments. The two together will make the Yuan an international currency alongside the US Dollar, Euro, Yen, GB Pound and the Swiss Franc but in a very different way. The Digital Yuan (DY) is supported by block-chain technology similar to Bitcoin making it tamper-proof and it is issued by China’s central bank as a national currency. The motives for internationalising the Yuan are, countering US dollar dominance of global finance, weakening SWIFT and curbing the clout of its own “fintech” giants such as Ant-Group, Lufax, 360-Digitech, LexinFintech and FinVolution. Recently China put the brakes on the listing of Ant; the reason probably was to prioritise the unfurling of the DY.

The Monetary Authority of Singapore and Tamasek have experimented with JPMorgan to establish a Multiple Central Bank Digital Currency Bridge (CBDC). In contrast to a platform unfurled by China, a more neutral and inclusive platform may be acceptable to more countries, but China is already using the DY on a trial basis for transactions with Shenzhen, Hong Kong (HSBC), Thailand (eight banks), the UAE and the Bank of International Settlements. With this CBDC system users bypass services like SWIFT which are used to communicate money transfers between two banks. DY bypasses this system via CBDC links and implements Yuan denominated transactions directly. Since the system is backed by the full faith of the Chinese Government it is rather like an amalgamation of SWIFT and the Fed.

In domestic transactions within China using DY renders credit cards redundant and gives notice to Wechat, Alipay and Unionpay that their days are numbered. Looking a little ahead it may render the banking system itself a creature of the past. You can open an account with the central bank (People’s Bank) and do all your payments and standing order processing in DY without needing a cheque book or credit card – and of course give the government a ring-side view all your financial involvements including those Valentine’s Day roses and Swiss chocolates you gifted to each of your mistresses.

What about concealing illicit sources of income and tax avoidance – well on second thoughts, maybe a digital yuan account with the central bank is not such a good idea if you belong to the class whose income is two orders of magnitude larger than this humble columnist’s! So moving all your cash into a digital transactions account with poor out-foxed-by-everybody Lakshman’s Central Bank may be a bit tricky. Still, poor Lakshman’s CB, though on course to crash, will survive for a while longer than the Bank of Ceylon, People’s Bank and Sri Lanka’s commercial banks.

Since DY transactions will not need SWIFT or the dollar, the dollar’s role in international trade and its global hegemony will decline giving the world more choice. Will Iran be able to breathe a sigh of relief? China is the biggest trading partner of 120 countries, why should they depend on the dollar as an intermediary in settling their accounts? Transactions will also be free of the financial risk of adverse intermediate dollar exchange rate movements. The other advantage is that the SWIFT platform entails fees. It is difficult to disentangle what portion of bank charges for an international transfer accrues to SWIFT and how much is pocketed by the bank. My guess is that the total fees collected by SWIFT worldwide runs to hundreds of billions of dollars each year.

There could be a mix of motives in the moves of Chinese regulators. In addition to the overtly political ones I noted, this time it is also leading an assault on Big Tech lenders, stamping out monopolistic behaviour and providing a degree of protection to the public. With the advantage of data monopoly Fintech firms hinder fair competition and seek excessive profits. It is a winner-takes-all industry and no doubt also interferes with the monopoly of snooping on people’s privacy so loved by national security agencies. Ant Group’s IPO halt reflects a turning point. Regulators hit out with antitrust laws targeting bundled sales and price discrimination, tighter rules for online insurance sales and lower annual interest rates after a ruling by the Supreme People’s Court capping rates on personal loans at 15.4% – four times the government one-year loan prime rate of 3.85%. Thousands of court cases show China curbing interest rates of licensed financial institutions at 24%. What about Sri Lanka; is there hope for poor borrowers from rapacious microfinance providers?

The hegemony of the US dollar is anchored in the petrodollar. A 1945 agreement between the United States and Saudi Arabia cemented the relationship between the dollar and oil and the petrodollar was conceived. In 1971 when US stagflation prompted runs on the dollar the value of the dollar plummeted and other countries wished to redeem their dollars for gold, but to protect declining US gold reserves Nixon removed the dollar from the gold standard where dollars were convertible to gold at a fixed rate of $35 per ounce. Currently the gold price is about $1,850 per ounce. This devaluation of the dollar also helped the US economy as its export values decreased, making them more competitive but a falling dollar hurt oil-exporting countries whose prices were denominated in dollars. The cost of imports, denominated in other currencies, increased.

In 1973 the US provided military aid to Israel for the Yom Kippur War enraging the Organization of Petroleum Exporting Countries which halted oil exports to the US and Israel’s allies. The OPEC oil embargo quadrupled the price of oil in six months which remained high after the embargo ended. Then came the punch line; in 1979 the US and Saudi Arabia agreed to use US dollars for oil contracts and then recycle the dollars back to America through contracts with US companies. The petrodollar, an arrangement by which all oil will be globally priced and sold in dollars was fully formed and born. Everybody including Iran, Russia and China are caught in this trap.

The petrodollar is the mechanism by which the US maintains dominance over the global financial system and it uses this financial power to enforce its foreign policy. For example, the US sanctioned Iran for refusing to halt its development of potential nuclear weapons and hit Russia with trade embargoes for invading Crimea and the crisis in the Ukraine. The countries of the Middle East don’t fight back because their regimes are beholden to US military assistance to hold their own populations in thrall; they also fear that a collapse of the petrodollar system would disrupt their oil trade.

Oil producing countries hold huge dollar reserves and recycle them through sovereign wealth funds. The funds are used in non-oil related businesses. The world’s five largest petrodollar recyclers ranked by assets are: Norway’s Government Pension Fund ($1.2 trillion), the UAE’s Abu Dhabi Investment Authority ($700 billion), Kuwait Investment Authority ($530 billion), Saudi Arabia’s SAMA fund ($490 billion) and the Qatar Investment Authority ($330 billion). These monies are held in US bonds and Treasuries making them partners in the preservation of dollar hegemony.

Sometime in this decade the US economy will fall behind China’s in size to second place. It is not possible for the currency of Mr Number Two to indefinitely remain the global monetary hegemon. But it is going to be a complicated and drawn out process. Though China calls for a replacement of the US dollar as the global currency, ironically, it is the largest foreign holder of dollars. Currently China influences the dollar by pegging the Yuan to it but this an intermediate stage until the DY comes into its own. For the near future there is no sign of collapse of the dollar’s global hegemony. There is also a different kind of threat to the petrodollar as the world shifts from oil to renewable energy. People are limiting greenhouse gas emissions to fight global warming and shifting to solar and wind power generation and to electric vehicles. This threatens oil-producing nations. The US has lost its competitive edge in these technologies to China and the European Union. As a result the role of the dollar as the world’s dominant currency is in decline.



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Decolonising education and critical thinking

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IN BLACK SKIN, WHITE MASKS (1952), FRANTZ FANON, the political philosopher from the French colony of Martinique, showed the importance of native language for the colonised to gain independence, decolonise knowledge and come out of their subordination.

By Darshi Thoradeniya

I would like to throw out some ideas on the importance of critical thinking in higher education especially in relation to history teaching by expanding the profound thoughts on decolonising education, expressed by Harshana Rambukwella, earlier in this column.

Just as educational institutions served to colonise subjects in colonial settings, the decolonising project also started through education. In the discipline of history, for instance, we constantly attempt to decolonise knowledge that has been created about the past and create new knowledge about the past through critical inquiry. In other words, critical inquiry is the tool that is used to decolonise knowledge. Thus, these two elements – decolonising knowledge and critical thinking – need to be linked in our discussions of higher education in post-colonial settings like Sri Lanka.

As Louis Althusser (1918-1990) argued, educational institutions are ideological state apparatuses used to promote and reinforce the ideology of the dominant classes. Through the national curriculum, government and private schools, in Sri Lanka, carry out this task meticulously. However, universities do not have a national curriculum; instead they have a subject benchmark statement that needs to be conceded to. Humanities and social sciences curricula are designed to generate critical engagement with key concepts, theories, texts and events. Thus, the school curriculum is unlearnt and critical thinking learnt at the university.

Critical thinking can take different forms according to the field of inquiry, but being able to question existing taken for granted knowledge is a crucial aspect of critical thinking. It is when knowledge is problematised by asking questions, such as who produced the knowledge, for whom it was produced, and by analyzing what sources were drawn upon to create the knowledge, do we become aware of the colonial mindset that we have developed and nurtured over the years through the school curriculum.

This is best illustrated through the way we teach and learn history in schools and perhaps even in some universities. Within the school curriculum, history is taught with an overwhelming emphasis on Sinhala Buddhist culture as if it is a pure, untainted culture sustained over 2500 years. This ideology is put forward mainly through uncritical engagement with sources. Mahawamsa (the great chronicle) is a key primary source that has shaped the history of Sri Lanka. At school level, we are not taught to question the intentions of the author, the sources analysed nor the audience for which the Mahawamsa was written. Sinhalese Buddhist culture became the dominant ideology with the involvement of colonial administrators, such as Alexander Johnston – the Chief Justice of Ceylon from 1811 to 1819 – who played an influential role in the translation of the Mahawamsa to English in the early 1800s. By neglecting these questions, we overlook the fact that this island has been situated in the trade route between the West and the East since the 12th century, and the possibilities of other narratives of ethnicity that could emerge by virtue of its location. Such possibilities are unfortunately not explored in schools because of lacking critical engagement on the historiography of Sri Lanka.

History writing in the colonies was essentially a production of colonial masters, hence a production of colonial knowledge. These histories were written by European travellers, missionaries, officials and administrators of trading companies, such as the Dutch East India Company or the British East India Company. Renowned Indian historian Romila Thapar charts how 19th century utilitarian and nationalist ideas in Europe influenced the Scottish economist and political theorist James Mill making him interpret Indian civilisation as static, leading him to divide Indian history into three sections – Hindu civilisation, Muslim civilisation and the British period – in his work History of British India (1817). The static character of Indian society with its despotic rulers became accepted as “truth” in Indian history as British colonial administrators were mandated to read the text before taking up duties in colonial India. The idea of oriental despotism would also justify the introduction of the British legal and administrative system to India. This colonial historiography remained unchallenged until decolonisation of knowledge took place in mid-20th century India.

When looking at the historiography of Ceylon, we can see many parallels with Indian historiography. Colonial administrators, such as Emerson Tennant and Codrington wrote a somewhat linear, continuous history of Ceylon emphasizing a Sinhalese Buddhist narrative centered on the kingdoms of Anuradhapura, Polonnaruwa, Dambadeniya, Yapahuwa, Kurunegala, Gampola and Kotte. By the 1970s, a group of Marxist historians started applying critical inquiry to the discipline of history and actively decolonising historical knowledge.

In Black Skin, White Masks (1952), Frantz Fanon, the political philosopher from the French colony of Martinique, showed the importance of native language for the colonised to gain independence, decolonise knowledge and come out of their subordination. He believed that human imagination could only be truly expressed through native language and could never be accomplished through the language of the colonial master. Taking this language argument further, Palestinian American public intellectual Edward Said showed in his seminal work Orientalism (1978), how Eurocentric prejudices shaped peoples’ imagination of the Orient (i.e., the Middle East and Asia) as barbaric, backward and traditional, and how such understandings were ultimately bestowed the status of scientific knowledge.

Similar decolonising experiences and projects can be traced in Latin American and African settings. Latin American cultural anthropologist Walter Mignolo believes that formal educational institutions established by the colonisers must be dismantled in order to decolonise the mindset of the people. Otherwise, people’s imaginations are trapped within the knowledge that is produced by these institutions. If people are to freely imagine and experience epistemic knowledge, they should be free from formal boundaries.

The faculties of humanities and social sciences in state universities have a gigantic task in hand. How should we further the project of decolonisation? A first step might be to start teaching Sinhala, Tamil and English languages to all humanities and social sciences undergraduates to facilitate understanding the indigenous cultures in which a specific knowledge is produced. At present, history writing mainly takes place within bilingual settings, and very rarely in trilingual settings, because very few historians are trilingual in Sri Lanka. The inability to comprehend the third language (i.e., Sinhala or Tamil) limits the historian from understanding the mentality of the so called ‘other’.

If we do not know the ‘other’ colonial subject, how are we to write a history of Sri Lanka? Not knowing the other’s language means we can only produce knowledge about one particular segment of society. Historians conversant in Sinhala and English end up servicing the hegemonic discourse (i.e., Sinhala Buddhist ideology), while historians conversant in Tamil and English end up creating an alternative narrative that is very unlikely to reach main stream historiography. There lies a fundamental problem that we need to address in decolonising university education. One suggestion in this regard would be to initiate exchange programmes between departments of national universities so that undergraduates as well as staff will be able to engage with the decolonising project in a holistic manner.

(Darshi Thoradeniya is a Senior Lecturer attached to the Department of History at the University of Colombo.)

Kuppi is a politics and pedagogy happening on the margins of the lecture hall that parodies, subverts, and simultaneously reaffirms social hierarchies.

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Australian antics and Djokovic’s disgrace!

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By Dr Upul Wijayawardhana

It was a drama like no other! It is rarely that one and all involved in a saga ends up being a loser and that is exactly what happened with the ‘Australian Open’ fiasco. Novak Djokovic, his family, Tennis Australia, The Government of Victoria, Federal Government of Australia, the Serbian President and even the media have exposed chinks in their armour! Perhaps, the only people delighted would be our politicians who could now claim, justifiably, that incompetence is a trait shared by their ilk in the developing world, too!

Many, especially youngsters, would look up to sports stars for inspiration. Though many sports are no longer what they used to be, having undergone an unholy metamorphosis to be businesses, still a greater degree of honesty is expected of sports stars than from politicians. After all, sportsmanship is a term often used to express fair and generous behaviour. Considering all this, perhaps, the bulk of the blame should go to Novak Djokovic, the number one male tennis player who could have created history, had he won the Australian Open by being the Male Tennis player with the most ‘Grand Slams’. Perhaps, in his overenthusiasm to achieve this, he attempted to find ways to compete without being vaccinated for Covid. But it failed, and the 11-day drama was finally over when he was deported on Sunday evening.

In a way, it is very unfortunate that Djokovic had to make that sacrifice for the sake of a strong-held belief of his. Though he has not been directly involved in any anti-vaccination campaigns, his refusal to have the Covid-19 vaccine had been made use of by anti-vaxxers on social media. At the very beginning of the epidemic, he got into trouble by organising a tournament in Serbia, where a number of players, including himself, got infected. Though there were rumours that he was not taking vaccines due to medical contraindications, it is very likely the actual reason is his going by the opinion expressed by some specialists that infection gives better immunity than vaccination.

Though Djokovic’s vaccination status had been shrouded in secrecy for a long time, what transpired during this fiasco confirmed that he was not vaccinated and that there were no medical contraindications for vaccination. Whatever your beliefs or however important you are, one is still bound by rules and regulations. Australia is among the countries that imposed the strictest controls during the pandemic. In fact, many Australian citizens were stuck in many countries unable to return home, some for over a year. Even now, only dual vaccinated are allowed entry. If Djokovic had wished to stick to his principles, he should have done the honourable thing by staying out of the tournament, which is what some other players did.

It is surprising that Djokovic was given a medical exemption to enter Australia by two different independent health panels––one commissioned by Tennis Australia, the other by the state government of Victoria––after testing positive for coronavirus in mid-December, given that the rules are otherwise. Perhaps, they were more concerned about the success of the Australian Open tournament and were willing to bend rules! It is even more surprising that the Federal Government did not question this as immigration is not a function devolved to state governments. The moment Djokovic announced on Twitter that he would be attending, there was a hostile public reaction which may be the reason why Djokovic was detained on arrival but what followed could easily have been avoided had the Immigration Minister taken pre-emptive action. Whether the state government and the federal government being run by two different parties had any bearing on these actions is a moot point.

Djokovic made a false declaration that he had not been to any other country recently in spite of clear evidence to the contrary but later blamed his team for making the error. Surely, he should know that the responsibility is his, once he signs any form! When he had the infection in mid-December, rather than isolating himself, which even anti-vaxxers would do, he attended a number of indoor public events. And his explanation; he did not want to inconvenience the French TV team there to interview him. Serbian President overlooked all this, to blame Australia!

The state judge reversed his visa cancellation citing procedural issues. A BBC report exaggerated this by stating that the judge had allowed him to play in the Australian Open! Although the Immigration Minister could have taken immediate action, he chose not to do so, taking a number of days to cancel the visa on ‘Health and good order grounds. To hear Djokovic’s appeal the federal high court sat on a Sunday, just like our courts being kept open to grant bail to MPs! The three judges unanimously rejected his appeal, the Chief Justice stating that the court ruling was based on the legality of the Minister’s decision, not on whether it was the right decision to make. Interestingly, BBC implied that Djokovic’s efforts would reach fruition!

Perhaps, the federal government was forced to act by the injudicious press conference held, after the success of the first appeal, by Djokovic’s family in Belgrade, wherein they attempted to portray him as a poster-boy for choice. It had a disastrous ending by the family terminating the press conference when journalists questioned why Djokovic had attended functions soon after testing positive! After the deportation, Djokovic’s father has called it an assassination, of all things, failing to realise that he was hampering the chances of reversal of the three-year entry ban to Australia, Djokovic was facing! Serbian political leaders hitting out hard, calling it scandalous treatment was not very diplomatic, and did not help Djokovic.

The lesson we can learn, except that politicians play politics wherever they are, is that federated states have their own problems, as illustrated by this sad, winnerless episode.

There were varying shades of reactions to this saga. Perhaps, the words of wisdom came from Rafael Nada, who said, “He made his own decisions, and everybody is free to take their own decisions, but then there are some consequences”

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Historic task—a non-racist and human security ideology

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By Jehan Perera

The media has reported that President Gotabaya Rajapaksa will be announcing a new policy on national reconciliation in his address to Parliament at this inaugural session following prorogation last month. Apart from bringing peace of mind and comfort to those bereaved by the three decades long war, the central issue of national reconciliation is to find an equitable solution to the ethnic and religious conflicts that have plagued the country since the dawn of independence more than seven decades ago.   The focus now needs to be on the development of the country and its economy rather than to support any parochial or ethnic cause and continue with the divisive politics of the past. It is only by this that the country can get back on its feet, and as many countries which had done so following traumatic events.  President Rajapaksa was elected by a large majority with this hope in mind.

Indeed, it is unlikely that any other President could have faced the multiple crises the present government has got the country into and remained with its 2/3 majority intact, as it has done so far.  The recent announcement of the SLFP, headed by former President Maithripala Sirisena, that it would remain within the government alliance, while criticising it from within, is an indicator of the government’s stability.  This follows the similar declaration by the three leading cabinet ministers from the 11 party alliance of small parties within the government, who have filed cases in the courts against the government.  They too have said they would remain within the government and continue to challenge its decisions that they deem to be incorrect.

There are two key reasons why the government has a measure of stability despite the deteriorating economic situation that is impacting severely on the wellbeing of the majority of people.  The first is the pragmatic calculation of the government leadership that it is better to have its critics within the government than out of it.  It seemed possible that the sacking of Minister Susil Premjayantha for being overly critical of the government would be the start of a purge of internal critics of the government that could cause an unravelling.  But so far it is only Minister Premjayantha, who has had to pay the price for his independence.  This has been explained by the fact that the former minister was a member of the ruling party itself, unlike the other critics who belong to other parties.

SECOND STRENGTH

Due to the multiple perspectives within the government, and which represent the diversity of the government alliance, it has been able to reach out to the widest possible swathe of society.  At the same time, it is able to woo diverse sections of the international community, including the three big international formations that hold the key to the country’s economic progress.  These are China, India and the Western countries. China is continuing to provide economic resources on a large scale along with India.  Both of these big powers seek to improve their position of influence on Sri Lanka and ensure a physical presence in the country which is being granted. Dealing with China has been the easiest, as it only seeks to gain more economic and physical assets within the country to ensure its permanent presence.

Dealing with India and the Western countries is more challenging as they require political concessions as well. In the case of India it is a political solution to the ethnic conflict which involved power-sharing with the minority Tamil community.  In the case of the Western countries it is progress in terms of protecting human rights.  With Sri Lanka being a country of interest to the UN Human Rights Council in Geneva, this means that its human rights record is scrutinised every three months.  The forthcoming session in late February, which continues through March, will be especially important.  The Sri Lankan government is expected to present a written report on its progress in terms of issues of accountability, truth seeking, reparations and institutional reform.  The response of the majority of countries at the UNHRC can have a significant impact as it would influence the European Union’s pending decision on whether or not to suspend its GSP Plus tariff privilege which is a source of support to the Sri Lankan economy.

In this regard, it will be necessary for the government to rein in its champions of ethnic nationalism and national security that give emphasis to the perspective of the ethnic majority community alone.  This is going to be the great challenge as the second strength of the government is its ideology of ethnic majority nationalism and national security which it invokes at frequent intervals, and especially when it faces challenges.  These help to keep the ethnic majority’s loyalty to the government. But they alienate the minorities and also those sections of the international community who are concerned with human rights. The country remains deeply traumatised by three decades of internal war, in which acts of terrorism could strike anywhere, a separate Tamil state led by the LTTE was a short distance away and the centre itself was at risk of being taken over violently by the JVP.  These crises led to extreme measures that have left indelible scars and memories on the people that are easy to reinvoke.

BOTCHED ATTEMPTS

The botched attempt to explode a bomb in All Saints Church in Colombo and the botched police investigation into it have given the impression of a created event that has been questioned by the Catholic Church.  The bomb discovery, in which the Catholic priests did more to uncover evidence than the police, served to divert attention from the 1,000, day commemoration by the church of the 2019 Easter bombings, which killed over 280 persons, set the stage for conflict between Catholics and Muslims and reinforced the need for national security, and racists, to take the centre stage of national politics. On that occasion, as on this, Malcolm Cardinal Ranjith, the Archbishop of Colombo, played a crucial role in preventing an escalation of the crisis and in calling for the truth behind the bombings to be known. Like the prophets in the biblical tradition, he is increasingly powerful in speaking truth to the rulers, even truths they do not wish to hear.

Events such as the Easter bombing, and now this latest incident, give the impression of security failure that is detrimental to the country’s internal communal harmony and to the international image of the country as a peaceful and secure one for both investment and tourism. Sri Lanka is yet to emerge from the thrall of nationalist politics, and its falsehoods and violence, where political leaders make deliberate and purposeful use of communal differences to win votes and come to power.  They have succeeded time and again in this dastardly practice, but with it the country has failed to reach its full potential time and again.  The costs have been unbearable, whether in terms of lives lost, properties destroyed and economic growth stymied.  Sri Lanka has one of the largest standing armies in the world, with the number of its military personnel being five times larger than that of Australia, though the populations of both countries are about the same.  This means economic resources being taken away from development purposes.

The historic task for President Gotabaya Rajapaksa and the government is to make a shift away from a mindset that emphasises the interests of the ethnic majority and national security being the preserve of the security forces to a new mindset that includes the ethnic minority and sees human security and wellbeing as the country’s need. The Sri Lankan state needs to consider all its people as citizens with equal rights, and not as ethnic majorities and ethnic minorities to be treated differently.  And it needs to give priority to human security and wellbeing where gas cylinders do not explode and people have food and education at affordable prices. Both religious leaders and political leaders need to come up with an ideology of the wellbeing of all in which solutions that are beneficial to all are found, where basic needs of all are met, and there is no divide and rule, which is a recipe for long term failure.

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