I’ve never been to California, but I’m reliably informed that those who hail from the state are not known for their subtlety.
With that in mind, it’s fitting that when Mark Zuckerberg showed up before Congress to testify on his Libra project, a Democrat representing the state decided to tell him the below, for all to hear:
… the dollar is very important to us as a tool: a tool of American power and also a tool of American values. So we would much prefer to put sanctions on a country than send our soldiers there. As you know, the power that we have because the [dollar-based global] banking system is significant…
So when something threatens the dollar, we get very nervous, and we should be. Because that’s something that has been very useful for projecting American values and foreign power.
Do you understand all that fairly? Because I think you do, I mean, you’ve been hinting at that but I want you to understand that, because you’re playing in a space that is a delicate space for us.
The congressman, one Juan Vargas, doesn’t appreciate that there are some things best left unsaid. The man is just a congressman, so he won’t be a major player when it comes to using the “tool” itself, but it’s rare to get such an open and overt admission of how the dollar is viewed by Washington.
It seems the time for speaking delicately about the US’s “delicate space” is no more. I wish he’d gone further, and explained to Zuck what the difference is between “a tool of American power and also a tool of American values”…
I asked the good readers of this letter what you made of Libra, Facebook’s attempt at a digital currency, a while back (Becoming systemic – 20 June); most of you weren’t willing to cut the Zuck any slack on the project. Well, he certainly isn’t receiving any from Washington. Vargas would go on to describe Zuck’s session before Congress as a “beating”.
The Libra project is being subject to all of the government wrath that I expected bitcoin to be subjected to years ago. But for the most part, bitcoin has been disregarded by the authorities, with little major backlash in the West. Perhaps the threat posed by digital currencies had to wear a recognisable human face to be taken seriously.
The Chinese government meanwhile, seems to be taking the opposite approach to the digital currency space. Xi Jinping broadly endorsed the adoption of blockchain, the technology underpinning the bitcoin network, into pretty much anything government related last week.
Crypto enthusiasts are calling this “the two sentences worth $50 billion” due to the change in bitcoin’s market cap which occurred soon after:
“We must take the blockchain as an important breakthrough for independent innovation of core technologies… [We must] clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.”
I say “soon after” – it was ten hours later that BTC had a flash rally, so I wouldn’t be so sure. But Chinese tech stocks developing blockchain apps certainly got a boost from it, and with Chinese newspapers writing content like this, you see why. From Xinhua:
It is necessary to explore the application of “blockchain+” in the field of people’s livelihood, and actively promote the application of blockchain technology in the fields of education, employment, pension, precision poverty alleviation, medical health, commodity anti-counterfeiting, food safety, public welfare, social assistance, etc.
You need to take a lot of news out of China with a pinch of salt. Time will tell how far “blockchain” (a word which carries various interpretations) will be implemented in China.
But if whatever it comes up with does give the Chinese state an edge, the US will have no choice but to develop its own – or at least get the private sector motivated to start working on one. Now the US has formally acknowledged China as a peer-competitor, there’s little that’s off-limits in the Great Power Competition.
As Lieutenant General Eric Wesley of the US Army Futures Command said recently:
The nation that invests and participates in competition will determine the outcome of any given future war.
Now, even if you don’t fight in the future, even if we assume that we won’t have a war with a peer-competitor… absent competing, “left of conflict” you will see the nation that doesn’t compete lose influence over time. Incrementally, as a nation, we will lose influence if we don’t compete.
… The nation that invests in competition will be the most effective when conflict starts.
Bear in mind the question which prompted this asked how the military would be incorporating social media into its information warfare programme.
Which brings us back to a certain Facebook founder’s appearance before Congress. Interestingly, Zuck rolled with the punches at his “beating”. He responded to Vargas by saying that he understood the dollar’s use as a tool of Washington, and that actually… he was on Washington’s side!
But if the US wants to maintain its influence over global finance he argued, then “we” have to innovate, implying a collaborative process between the government and private sector. It was almost as though he’d got a memo from Lieutenant General Wesley.
Perhaps the US government will ask Zuckerberg to come up with the blockchain tech to compete with China – he’s clearly up for the task…
All the best,
Boaz Shoshan
Editor, Capital & Conflict
Category: Market updates