Is the dollar's decline a sign of too much money printing?

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It’s hard to imagine a time when paper money was innovative. Those crimped and crumpled bills pressed in your wallet seem so stale today. But to our ancestors, the rumpled slips were a revelation.

I dwelt on that moment—the moment in the 13^th century when the western world learned of paper money, by way of Marco Polo’s famous travelogue—while writing my latest feature about China’s digital currency ambitions. The recent work of the People’s Bank of China, the nation’s central bank, to deploy a digital yuan, may be a similar jolt of innovation from abroad.

Money has been going digital for decades, of course. In the United States, most money exists purely in computer databases; there’s only about $2 trillion of physical coins and bills in circulation versus $16 trillion for the majority of household wealth, which is held in less tangible forms such as savings accounts and the like, according to the Federal Reserve. And yet in the U.S. the ratio of cash use to use of other household financial assets—designations that humorless economists label “M0” vs. “M2”—remains among the highest in the world at 26%.

In China, things are quite different. In the past few decades, the Middle Kingdom leapfrogged from a poor and unconnected backwater to a global powerhouse whose masses are equipped with smartphones and app-enabled banking. Tencent’s WePay and Ant Financial’s Alibaba-linked Alipay dominate. Today, China boasts an M0/M2 ratio of 4%, among the world’s lowest.

China’s pursuit of a “digital currency/electronic payment,” or DC/EP, as its e-yuan is known, makes sense. Chinese society has already gone digital. What’s poised to change with the introduction of a national digital coin is the state will be catching up to—and reining in—the private sector, all while gaining expanded powers for itself. That includes the ability to scrutinize—and eventually even, possibly, program—money flows throughout the economy. In the end, China’s e-yuan gambit could even help it escape the vice-like international grip of the U.S. dollar, granting the country greater control of its trade and foreign policy destiny.

The U.S., on the other hand, has little interest in upsetting the balance that has worked so well for so long. America is mostly content to let the private sector plug holes that pop up in the existing financial system, on the assumption corporations abide by the rules. (Looking at you, Facebook.) The Fed’s eventual rollout of a long-overdue real-time payments system is a big step forward, but a national digital currency remains a distant prospect.

Ironically, the very sticking points holding many countries back from pursuing a central bank digital currency—privacy and security concerns chief among them—have instead propelled China forward. While dealing with know-your-customer and anti-money laundering issues might clash with the U.S. Fed’s political mandate to stay independent and above the fray, the PBOC appears eager to appoint itself new responsibilities. The crux of the matter is power, and who wields it.

If you’re like me, you might remember tuning in to the Beijing Olympics in 2008 and being stunned by the spellbinding opening ceremony. Perhaps you too thought: Wow, here is a country that doesn’t mess around. At the Beijing Winter Olympics in Feb. 2022, where the PBOC plans to roll out its digital yuan to a wider audience, we may witness a similar spectacle. When that happens, I suspect we’ll all be feeling a bit of déjà vu.

It’ll be the 21^st century equivalent of that Marco Polo moment.

Robert Hackett

@rhhackett

robert.hackett@fortune.com

DECENTRALIZED NEWS

Credits

Libra lead David Marcus will now head new Facebook payments business ... SEC Commissioner and 'Crypto Mom' Hester Pierce wins a second term ... Stripe poaches General Motors' CFO ... Investors are flocking to the Euro ... Robinhood will add hundreds of employees in Texas and Arizona ... Fintechs are expanding into crypto, but crypto startups aren't moving the other direction ... Bond platform Tumid tops $1 billion valuation ... DeFi infrastructure platform Alchemy launches.

Debits

When day traders do well, it's usually just luck ... Investors are turning to inflation-protected bonds ... China and Russia team up to move away from the dollar ... Bitcoin lost by an early adopter in 2010 would be worth $100 million today ... Bitcoin dipped below $11,400, but it's still up nearly 25% since mid-July ... Ethereum Classic suffers two 51% attacks in a week totaling $7.2 million ... ChainLink's "Link Marines" supplant the XRP Army as crypto's "most irritatingly omnipresent Elite Shilling Corps" ... Kodak insider made a huge stock donation the same day the stock (and potential tax benefits) peaked.

FOMO NO MO'

In a contemporary account, Marco Polo, the wandering merchant of Venice, marveled at “how the great Khan causeth the bark of trees, made into something like paper, to pass for money overall his country.” The banknotes were issued, he wrote, “with as much solemnity and authority as if they were of pure gold or silver.”

A bit of mind-expanding historical context from a new deep dive on China's digital currency push from Fortune's Robert Hackett. Chinese President Xi Jinping has vowed to “seize the opportunity” of blockchain-inspired electronic currency, and China is aiming to launch its digital yuan by 2022. Some say that could be a threat to the dollar's global reserve status, because it would link the yuan to faster digital infrastructure. But the CCP vision of digital currency lacks most of the key features that made cryptocurrency like Bitcoin appealing in the first place: decentralization, distributed governance, and of course, privacy and uncensorability.

So what's left? According to skeptics, just another tool of China's omniscient surveillance society.

BUBBLE-O-METER

$250 million

The amount of Bitcoin now owned by MicroStrategy, a publicly traded business intelligence firm, as part of a revamped strategy for managing its treasury, or cash on hand. It's a remarkable move, and perhaps the first of its kind. MicroStrategy described Bitcoin in a statement as "a reasonable hedge against inflation," echoing longtime 'hard money' rhetoric among Bitcoin advocates. The move had been signaled to stockholders in July, and was well rewarded on execution: MicroStrategy stock popped 15% on the morning of the announcement.

But it does represent massive risk for the company: MicroStrategy's market cap is $1.2 billion, and Bitcoin now represents 60% of its treasury. The original cryptocurrency has been mostly stable or rising for close to two years now, but it has been predictably volatile in the longer term ... and was down nearly 4% later on the day of MicroStrategy's announcement.