Current Developments

Security Commentaries #014

China’s Digital Yuan
China becomes a frontrunner among developed economies in implementing a centralized digital currency. China’s another attempt to internationalize the Chinese Yuan.
Angelo Brian T. Castro, Taiwan Center for Security Studies

 

 
China has conducted the experimental implementation for its digital currency trials in many cities, including Shenzhen, Chengdu, and Suzhou. During the trials, the participants were chosen through a lottery draw. Digital yuan employs a near-field communication system that allows mobile phones to use the system without an internet connection. Choosing such a feat was proof that China would want to include areas with limited internet coverage or far-flung places. Such differences could pose an immense challenge to the currently popular applications such as AliPay, WeChatPay, and other electronic financial transactions. The digital yuan, officially known as the Digital Currency Electronic Payment (DCEP), is the first state-backed digital currency. It is issued by the Chinese Central Bank and backed by the renminbi (RMB). It can be mistaken that China’s DCEP is a form of Chinese government cryptocurrency; however, it is not entirely the same as how cryptocurrencies are known. The difference was clarified between the more popular cryptocurrencies and DCEP soon after its introduction to the public. According to Mu Changchun, deputy director of the People’s Bank of China, there are notable differences between DCEP and cryptocurrencies. Bitcoin, Ethereum, or even stablecoins are different as these currencies are for speculation and require the support of a basket of currencies. The digital yuan is not as volatile as cryptocurrencies because the digital currency is a legal tender and issued by the People’s Bank of China and backed by China’s currency. The introduction of a centralized digital currency could change how the Chinese people transact and how China interacts. It offers both potential benefits and challenges to China and its users. Even Alibaba’s Ant Group has been participating in the trial programs, despite their fallout with Chinese regulatory authorities in the past. This goes to show just how widespread and ubiquitous the future of this medium could be, with involvement of the main players in the field such as Alibaba and Tencent. THE BENEFITS Security issues with money laundering, money counterfeiting, and other challenges involving money can be addressed as every transaction through the digital yuan is stored by the Chinese government. They will know who spends, what is being spent on, and where it is spent. The Chinese government can immediately freeze questionable assets or accounts. Also, it provides more accessibility for consumers as the digital yuan works even without an internet connection. Banking and businesses can also be made more convenient as it removes the third-party companies that bill transaction fees. Currently, international transactions are done through SWIFT, VISA, or Mastercard. The DCEP would lower transaction costs as these third-party companies would no longer be necessary for the process as the digital currency is from the central bank itself. THE CHALLENGES Meanwhile, the challenges in using DCEP are mainly due to privacy concerns as the Chinese government would have a complete record of every transaction made through the system. As China would gradually replace its physical currency with the DCEP, all residents and businesses would have to comply with the new regulation, including foreign residents and companies. Some critics emphasize that the Chinese government would benefit more than the people and businesses. It allows the government to monitor all the country's transactions and extend if the system is adopted externally. The digital yuan also has an expiration date that compels its users to spend the money and prevent stagnation in money circulation. Some speculations have also risen that China’s digital currency was meant to dethrone the US Dollar as the most popular reserved currency among countries. Being the preferred currency of international transactions, the United States wields considerable power to make economic sanctions work as assets and transactions are done through the US Dollar. Therefore, China can lower the impact of US sanctions on countries that would adopt the DCEP system as the transactions would not be in US dollars. However, the Chinese government also plans to work with SWIFT to make the DCEP system suitable for those with no issues dealing with both the renminbi and the US dollar. It becomes an interesting subject to see how the digital currency race would develop as they progress and if it can change the global financial order. Elsewhere, the Bank of England has recently announced the joint creation of a Central Bank Digital Currency (CBDC) Taskforce to coordinate the exploration of a potential UK CBDC. It is one of the pioneering and major developments in creating a state-backed digital currency in a western country. Even if China is the global leader when it comes to developing and pilot-testing their digital currency or e-CNY, the UK’s step in this direction shows the potential for western nations to put some skin in the game as well.

How the Mekong Basin Communities Cope with Water Security
Earlier this month, the Mekong River Commission (MRC) announced a new 10-year strategy and 5-year action plan to ensure an acceptable balance between basin development and management.
Thuong Nguyen, Taiwan Center for Security Studies

 

 
The MRC Strategic Plan 2021-2025 is a unified corporate plan, fully integrated with the Integrated Water Resources Management-based Basin Development Strategy (IWRM-BDS) 2021-2030. The strategy guides the MRC Secretariat’s actions in supporting the Mekong countries, Cambodia, Lao PDR, Thailand, and Vietnam, to address emerging challenges and achieve improvements in the Mekong River Basin. Accordingly, the strategy sets out five priorities in the following order: Environment—to conserve and regenerate the Mekong River Basin ecological system; Social—to enable inclusive access and utilization of the basin’s water and related resources, Economic—to enhance sustainable development of water and related sectors, Climate change—to strengthen resilience against climate risks, extreme floods and droughts, and Cooperation—to strengthen the joint actions among all basin countries and related parties. The MRC will deploy its strategic priorities in accordance with this five-year Strategic Plan. This strategy also sets out recommended measures that all national and regional stakeholders can take to fulfil these priorities, including implementing individual initiatives and programs for each side. Throughout the five-year action plan, the MRC is expected to invest more than $60 million, of which about 40% of this amount will come from MRC member states. According to MRC, this success can only be achieved when all stakeholders work together towards economic prosperity, social equity, a healthy environment, and good resilience to climate change. Unlike previous strategic plans, this BDS 2021–2030 is prepared and agreed for ten years under the Mekong River Commission (MRC) cooperation framework and focuses on the entire Mekong River Basin. The BDS 2021–2030 allows all relevant actors involved in Mekong water-related issues towards achieving improvements in the environmental, social, and economic status of the Mekong River Basin, which is periodically recorded in the State of Basin Report. This change is assumed due to the extent of water resources development, the environmental and water security issues. Therefore, this BDS 2021–2030 will encompass the transboundary coordination of dams and other water infrastructure operations. Additionally, this new strategy can be understood as an attempt to prevent the significant impacts of unusual operations of Chinese hydroelectric dams, which have changed the flow regime, affected sediment delivery, and increased riverbank erosion. These effects lead to a decrease in fish populations, degradation of environmental assets and floodplains, and a decrease in the Mekong Delta’s additional sediment. Furthermore, the new strategy is based on recent assessments of potential challenges as China is preparing to launch a new mega hydroelectric dam (Baihetan) in July, straddling Yunnan and Sichuan provinces. There has been an instantaneous drop in water levels since the beginning of January, and it is because China closed the Jinghong dam. There is a profound impact in about 60 million people living conditions along the lower Mekong from Beijing’s move during the annual dry season. The fluctuating river flow has even fallen to worrying levels without any improvement by mid-February. Since there has been the occurrence of abnormal changes in the water level, the Mekong River authorities and residents are pushed to a high level of readiness to respond to possible impacts. Stimson reported, from March 29 to April 4, five Chinese dams released water, threatening aquatic species, wildlife, and aquatic plants while they are in the breeding season. Clearly, this abnormal fluctuation of water level affects not only human livelihood but also the entire ecosystem. More importantly, the adjustment of the lower Mekong river countries’ approach adds to the uncertainty of China's BRI commitments. Hence, the new strategic plan is crucial to deepening cooperation on transboundary water governance between the Mekong countries and China. Even though water resources development will still be needed, a more proactive regional planning approach is crucial to supporting socio-economic development, building climate resilience, and managing flood and drought risks.

Looking Back on the ASEAN Emergency Summit on Myanmar Crisis: The Positives and the Challenges
Perhaps the ASEAN consensus in past weeks towards the Myanmar crisis deserves some appreciation, as it is finally breaking through the organization’s conservative norms. The outcome and real-world effects of the agreement will largely determine ASEAN's credibility, the commitment of the military junta, and the return of Myanmar to a democratic government.
Elpeni Fitrah - Taiwan Center for Security Studies
ASEAN - A regional profile
 
The ASEAN special high-level summit to address the ongoing crisis in post-coup Myanmar last month, located in ASEAN Secretariat, Jakarta, Indonesia, actually produced a spontaneous progressive resolution to end the turmoil. However, the agreement is considered far from perfect and still provokes dissatisfaction from some parties. On the positive side, this bloc should be appreciated for its ability to convince Myanmar's Junta Leader, Sen. Gen. Min Aung Hlaing, to attend the negotiating table in person and make this his first foreign trip since the Feb. 1 coup. It could be understandable that Myanmar's pro-democracy and some international human rights activists are unsatisfied with the inclusion. For them, the new State Administrative Councils (SAC) set up by the Junta is illegitimate and illegal. However, some experts presume that the rational way to restore the situation is opening communication with the military regimes. Secondly, the initial doubts and skeptical views toward this meeting turned out to be not entirely valid. The way this regional group handles the round-up seems more interventionist and has broken through conservative principles of this organization which is characterized by consensus and non-interference or broadly known as the "ASEAN Way." It can be seen from how the ASEAN's leader frankly conveyed their concerns to the coup leader during the dialogue process, as Indonesian President Joko Widodo said, "The situation in Myanmar is unacceptable and should not continue. Violence must be stopped, democracy, stability, and peace in Myanmar must be returned immediately,” He went on to say that the interests of the Myanmar people must always be the priority. Five key points agreed by Southeast Asian leaders and Myanmar’s Junta chief after the emergency summit. It can be simplified as, 1) end the violence immediately, 2) conducting constructive dialogue as a source of a peaceful solution, 3) ASEAN will send a special envoy to mediate the Myanmar crisis, 4) ASEAN will provide humanitarian aid, and 5) a special delegation of ASEAN must be allowed to enter Myanmar and meet the conflictual parties. When the Junta leader was approving the ASEAN's proposal to end its brutal repressiveness immediately, it seemed to be impressing that its administration is not anti-dialogue and very welcome to external intervention, as long as it comes from a trusted partner, or if its position is secure. Nevertheless, the audience would still be suspicious that a lenient gesture could have been a mere ornament on the lips, aimed at assuaging the international public's anger. One thing for sure, the regional’s approach based on dialogue, consultations, and consensus still seems more promising and constructive in solving problems than coercive or frontal measures. Myanmar's pro-democracy activists are certainly well-received and see a glimmer of hope behind ASEAN’s call for an immediate cessation of violence in Myanmar by saying this as "encouraging news." “We look forward to firm action by ASEAN to follow up its decisions and to restore our democracy and freedom,” said Dr. Sasa, the international co-operation minister of the parallel National Unity Government (NUG), Myanmar’s shadow government formed by ousted lawmakers and some ethnic groups opposed to the junta. Nevertheless, several disappointments have also surfaced. Firstly, ASEAN's consensus failed to include a clause that obliges the aggressor to release all political prisoners into the agreed document. The phrase was known to be deleted before the statement was formalized. This part is actually very essential to be a precursor for steps toward resolution of the crisis. The Assistance Association for Political Prisoners (AAPP), a Thailand-based rights group, reported that as of Tuesday (27/4), 755 people had been killed throughout the coup, while 4,496 people had been arrested. In addition, the political crisis also leads the country to the brink of an economic downturn. Secondly, the consensus doesn't formulate a timeline as a clear plan to ensure that this talk will immediately turn into action. This negligence is considered fatal because it gives more time for the crisis in Myanmar to continue on and lends room for the military junta to become more repressive. As a result, a day after the summit, the anti-coup protest still resonates, and the Junta regimes couldn't refrain from attacking and arresting civilians. Finally, the Myanmar public is now wondering, after ASEAN special summit on the Myanmar crisis, what's next? It's not just about ASEAN's commitment to safeguarding the implementation of its consensus but also about how it would wisely place itself in the middle of the two contested political power in Myanmar, the Junta and NUG, which mutually strive for international recognition. Furthermore, even though challenging, this regional leader's convention should be treated as a valuable momentum to create a humanitarian pause and provide an opportunity for international volunteers to start humanitarian work in Myanmar, such as Covid-19 assistance, food aid, and health assistance for victims of violence. This is possibly the best way to end the possibility of civil war and a prolonged escalating conflict in Myanmar, as well as preventing wider regional conflicts.
*This is an updating story and we will continue to monitor the situation as it unfolds.