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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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Features

TNGlive relieving boredom

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Yes, indeed, the going is tough for everyone, due to the pandemic, and performers seem to be very badly hit, due to the lockdowns.

Our local artistes are feeling the heat and so are their counterparts in most Indian cities.

However, to relieve themselves of the boredom, while staying at home, quite a few entertaining Indian artistes, especially from the Anglo-Indian scene, have showcased their talents on the very popular social media platform TNGlive.

And, there’s plenty of variety – not just confined to the oldies, or the current pop stuff; there’s something for everyone. And, some of the performers are exceptionally good.

Lynette John is one such artiste. She hails from Lucknow, Uttar Pradesh, and she was quite impressive, with her tribute to American singer Patsy Cline.

She was featured last Thursday, as well (June 10), on TNGlive, in a programme, titled ‘Love Songs Special,’ and didn’t she keep viewers spellbound – with her power-packed vocals, and injecting the real ‘feel’ into the songs she sang.

What an awesome performance.

Well, if you want to be a part of the TNGlive scene, showcasing your talents, contact Melantha Perera, on 0773958888.

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Supreme Court on Port City Bill: Implications for Fundamental Rights and Devolution

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The determination of the Supreme Court on the Colombo Port City Economic Commission Bill was that as many as 26 provisions of the Bill were inconsistent with the Constitution and required to be passed by a two-thirds majority in Parliament. The Court further determined that nine provisions of the Bill also required the approval of the people at a referendum.

Among the grounds of challenge was that the Bill effectively undermined the sovereignty and territorial integrity of Sri Lanka and infringed on the sovereignty of the people. It was argued that several provisions undermined the legislative power of the People reposed on Parliament. Several provisions were challenged as violating fundamental rights of the People and consequently violating Article 3, read with Article 4(d) of the Constitution. Another ground of challenge was that the Bill contained provisions that dealt with subjects that fall within the ambit of the Provincial Council List and thus had to be referred to every Provincial Council for the expression of its views thereon as required by Article 154G(3).

 

Applicable constitutional provisions

Article 3 of our Constitution recognises that “[i]n the Republic of Sri Lanka, sovereignty is in the People and is inalienable”. Article 3 further provides that “Sovereignty includes the powers of government, fundamental rights and the franchise”. Article 3 is entrenched in the sense that a Bill inconsistent with it must by virtue of Article 83 be passed by a two-thirds majority in Parliament and approved by the people at a referendum.

Article 4 lays down the manner in which sovereignty shall be exercised and enjoyed. For example, Article 4(d) requires that “fundamental rights which are by the Constitution declared and recognised shall be respected, secured and advanced by all the organs of government and shall not be abridged, restricted or denied, save in the manner and to the extent hereinafter provided”. Article 4 is not mentioned in Article 83. In its determinations on the Eighteenth Amendment to the Constitution Bill, 2002 and the 19th Amendment to the Constitution Bill, 2002, a seven-member Bench of the Supreme Court noted with approval that the Court had ruled in a series of cases that Article 3 is linked up with Article 4 and that the said Articles should be read together. This line of reasoning was followed by the Court in its determination on the 20th Amendment to the Constitution Bill.

Under Article 154G(3), Parliament may legislate on matters in the Provincial Council List but under certain conditions. A Bill on a matter in the Provincial Council List must be referred by the President, after its publication in the Gazette and before it is placed in the Order Paper of Parliament, to every Provincial Council for the expression of its views thereon. If every Council agrees to the passing of the Bill, it may be passed by a simple majority. But if one or more Councils do not agree, a two-thirds majority is required if the law is to be applicable in all Provinces, including those that did not agree. If passed by a simple majority, the law will be applicable only in the Provinces that agreed.

 

Violation of fundamental rights and need for a referendum

Several petitioners alleged that certain provisions of the Port City Bill violated fundamental rights. The rights referred to were mainly Article 12(1)—equality before the law and equal protection of the law, Article 14(1)(g)—freedom to engage in a lawful occupation, profession, trade, business or enterprise— and Article 14(1)(h)—freedom of movement. Some petitioners specifically averred that provisions that violated fundamental rights consequently violated Articles 3 and 4 and thus needed people’s approval at a referendum.

The Supreme Court determined that several provisions of the Bill violated various fundamental rights and thus were required to be passed by a two-thirds majority in Parliament. The question of whether the said provisions consequently violated Article 4(d) and thus Article 3 and therefore required the approval of the People at a referendum was not ruled on.

The Essential Public Services Bill, 1979 was challenged as being violative of both Article 11 (cruel, degrading or inhuman punishment) and Article 14. Mr. H.L. de Silva argued that a Bill that violates any fundamental right is also inconsistent with Article 4(d) and, therefore, with Article 3. The Supreme Court held that the Bill violated Article 11 but not Article 14. Since a Bill that violates Article 11 has, in any case, to be approved at a referendum as Article 11 is listed in Article 83, the Court declined to decide on whether the Bill offended Article 3 as well, as it “is a well-known principle of constitutional law that a court should not decide a constitutional issue unless it is directly relevant to the case before it.”

A clear decision on the issue came about in the case of the 18th Amendment to the Constitution Bill; a seven-member Bench of the Supreme Court held that the exclusion of the decisions of the Constitutional Council from the fundamental rights jurisdiction of the Court was inconsistent with Articles 12 (1) and 17 (remedy for the infringement of fundamental rights by executive action) and consequently inconsistent with Article 3, necessitating the approval of the Bill at a referendum.

When the 20th Amendment to the Constitution Bill sought to restore the immunity of the President in respect fundamental rights applications, the Supreme Court determined that the “People’s entitlement to remedy under Article 17 is absolute and is a direct expression of People’s fundamental rights under Article 3 of the Constitution.”

In the case of the Port City Bill, however, the Supreme Court only determined that certain provisions of the Bill violated fundamental rights and thus required a two-thirds majority, but did not go further to say that the offending provisions also required approval of the people at a referendum.

Perhaps, the Court took into consideration the Attorney-General’s assurance during the hearing that the impugned clauses would be amended at the committee stage in Parliament.

However, Parliament is not bound by the Attorney-General’s assurances. In the absence of a clear determination that the clauses concerned required a referendum as well, Parliament could have passed the clauses by a two-thirds majority. The danger inherent in the Supreme Court holding that a provision of a Bill violates fundamental rights and requires a two-thirds majority but makes no reference to the requirement of a referendum is that a government with a two-thirds majority is free to violate fundamental rights, and hence the sovereignty of the People by using such majority. It is respectfully submitted that the Court should, whenever it finds that a provision violates fundamental rights, declare that Article 3 is also violated and a referendum is necessary, as it did in the cases mentioned.

 

The need to refer the Bill to Provincial Councils

The Port City Bill had not been referred to the Provincial Councils, all the Provincial Councils having been dissolved. The Court, following earlier decisions, held that in the absence of constituted Provincial Councils, referring the Bill to all Provincial Councils is an act which could not possibly be performed.

In the case of the Divineguma II Bill, the question arose as to the applicability of the Bill to the Northern Provincial Council, which was not constituted at that time. The Court held while the Bill cannot possibly be referred to a Council that had not been constituted, the views of the Governor (who had purported to express consent) could not be considered as the views of the Council. In the circumstances, the only workable interpretation is that since the views of one Provincial Council cannot be obtained due to it being not constituted, the Bill would require to be passed by a two-thirds majority. Although not explicitly stated by the Court, this would mean that if the Bill is passed by a simple majority only, it will not apply in the Northern Province. The Bill was passed in Parliament by a two-thirds majority. The Divineguma II Bench comprised Shirani Bandaranayake CJ and Justices Amaratunga and Sripavan, and it is well-known that the decision and the decision on the Divineguma I Bill cost Chief Justice Bandaranayake her position.

It is submitted that Article 154G (3) has two requirements—one procedural and one substantive. The former is that a Bill on any matter in the Provincial Council List must be referred to all Provincial Councils. The latter is that in the absence of the consent of all Provincial Councils, the Bill must be passed by a two-thirds majority if it is to apply to the whole country. If such a Bill is passed only by a simple majority, it would apply only in the Provinces which have consented.

The Divineguma II determination accords with the ultimate object of Article 154G(3), namely, that a Bill can be imposed on a Province whose Provincial Council has not consented to it only by a two-thirds majority. It also accords with the spirit of devolution.

A necessary consequence of the Court’s determination on the Port City Bill is that it permits a government to impose a Bill on a Provincial Council matter on a “disobedient” Province by a simple majority once the Provincial Council is dissolved and before an election is held. What is worse is that at a time when all Provincial Councils are dissolved, such as now, a Bill that is detrimental to devolution can be so imposed on the entire country. It is submitted that this issue should be re-visited when the next Bill on a Provincial Council matter is presented and the Supreme Court invited to make a determination that accords with the spirit of devolution, which is an essential part of the spirit of our Constitution.

 

 

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‘Down On My Knees’ inspires Suzi

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There are certain songs that inspire us a great deal – perhaps the music, the lyrics, etc.

Singer Suzi Fluckiger (better known as Suzi Croner, to Sri Lankans) went ga-ga when she heard the song ‘Down On My Knees’ – first the version by Eric Guest, from India, then the original version by Freddie Spires, and then another version by an Indian band, called Circle of Love.

Suzi was so inspired by the lyrics of this particular song that she immediately went into action, and within a few days, she came up with her version of ‘Down On My knees.’

In an exclusive chit-chat, with The Island Star Track, she said she is now working on a video, for this particular song.

“The moment I heard ‘Down On My Knees,’ I fell in love with the inspiring lyrics, and the music, and I thought to myself I, too, need to express my feelings, through this beautiful song.

“I’ve already completed the audio and I’m now working on the video, and no sooner it’s ready, I will do the needful, on social media.”

Suzi also mentioned to us that this month (June), four years ago, she lost her husband Roli Fluckiger.

“It’s sad when you lose the person you love but, then, we all have to depart, one day. And, with that in mind, I believe it’s imperative that we fill our hearts with love and do good…always.”

A few decades ago, Suzi and the group Friends were not only immensely popular, in Sri Lanka, but abroad, as well – especially in Europe.

In Colombo, the Friends fan club had a membership of over 1500 members. For a local band, that’s a big scene, indeed!

In Switzerland, where she now resides, Suzi is doing the solo scene and was happy that the lockdown, in her part of the world, has finally been lifted.

Her first gig, since the lockdown (which came into force on December 18th, 2020), was at a restaurant, called Flavours of India, with her singing partner from the Philippines, Sean, who now resides in Switzerland. (Sean was seen performing with Suzi on the TNGlive platform, on social media, a few weeks ago).

“It was an enjoyable event, with those present having a great time. I, too, loved doing my thing, after almost six months.’

Of course, there are still certain restrictions, said Suzi – only four to a table and a maximum crowd of 50.

“Weekends are going to be busy for me, as I already have work coming my way, and I’m now eagerly looking forward to going out…on stage, performing.”

In the meanwhile, Suzi will continue to entertain her fans, and music lovers, on TNGlive – whenever time permits, she said,

She has already done three shows, on TNGlive – the last was with her Filipino friend, Sean.

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