‘In one of his last acts as president, Donald Trump issued an executive order banning eight Chinese software applications, including Alipay and WeChat, the world’s largest mobile payment app.’

• ‘Trump’s ban, issued on January 5, sought to address concerns that these popular Chinese apps might allow Beijing access to sensitive data about Americans.’

‘But China’s emerging dominance in financial technology, also known as “fintech,” poses an even more fundamental problem for the United States.’

• ‘Beijing will use fintech to occupy the high ground in global commerce, bolster its surveillance state, and lay the groundwork to challenge the U.S. dollar as the world’s reserve currency.’

Embed Fintech in Economies.

‘China’s dominance in fintech promises to boost the CCP’s expansionist ambitions in another way, hardwiring other countries to China’s economy. Chinese fintech firms function like a geoeconomic Trojan horse.’

• ‘First, Alipay and WeChat Pay—companies that make up 95 percent of China’s mobile payments market—integrate themselves into daily economic life in another country.’
• ‘Then, piggybacking off this financial infrastructure, they and other Chinese firms acquire digital banking licenses and rapidly expand into other sectors, including digital insurance, consumer credit, remittances, and lending.’
• ‘These companies soon become too embedded in their host country to remove.’

Yuan Reserve Currency Dominance.

‍‘China’s bid for fintech hegemony in Asia is a step toward an even bigger goal: achieving global reserve currency dominance.’

• ‘Last fall, analysts at the U.S. financial services firm Morgan Stanley forecast that the yuan could surpass the Japanese yen and the British pound sterling to become the world’s third-largest reserve currency by 2030, accounting for between five and ten percent of global foreign exchange reserve assets.’
• ‘Countries in the Southeast Asia may soon begin to increase the share of yuan in their foreign currency reserves.’

Digital Yuan.

‘Beijing is challenging the sway of the U.S. dollar over Southeast Asia and parts of Africa as it prepares to launch, likely within the next year, a sovereign digital yuan, which would make transactions easier and also enable China to better track how its currency is used.’

• ‘Consumers and merchants throughout Southeast Asia will soon be able to use the digital yuan on Alipay and WeChat Pay.’
• ‘Later, the apps will serve as distributors of the digital yuan as local businesses find it more efficient to use the yuan than the dollar in transactions with Chinese companies.’
• ‘The CCP could then push for the digital yuan to be used instead of the U.S. dollar by bigger institutions and businesses conducting large transactions, such as making interest payments and financing supply chains.’

‘That shift has already begun—even before the release of China’s new sovereign digital currency.’

• ‘As bilateral trade between China and Southeast Asian countries has grown in recent decades, so has the share of trade that is conducted in Chinese yuan, eating into the U.S. dollar’s share of bilateral trade.’

‘China’s digital yuan could siphon transactions away from Western-dominated money exchange platforms such as SWIFT, the key mechanism that maintains U.S. dollar dominance in global trade.’

• ‘CCP officials have described SWIFT as a means for the United States to maintain “global hegemony” and reap “huge profits by virtue of the monopoly platform.” U.S. officials must take Chinese moves in this area seriously.’
• ‘Max Levchin, a co-founder of PayPal, believes that if the United States does not make a digital version of the dollar more readily available, “we run the risk of letting China become the digital reserve currency of the world.” ’  
• ‘The United States will lose the leverage and influence it has over many countries if they increasingly opt for the yuan over the dollar.’

Countering Chinese Fintech.

‍‘The United States must get serious about offering other countries alternatives to China’s fintech companies, tapping the strength of U.S. technology firms.’

• ‘And yet these firms have been slow to involve themselves in the growing competition with China.’

‘Either Alibaba or Tencent has invested in every single one of the 13 technology unicorns—startups valued at $1 billion or more—in Southeast Asia.’

• ‘Facebook and PayPal, by contrast, invested in their first Southeast Asian fintech player, Gojek, just last March.’
• ‘U.S. companies such as Facebook, Google, and PayPal must not get boxed out of the world’s most significant growth markets, which are mostly in the Indo-Pacific region.’