THE FUTURE OF MONEY: Digital Currencies as Decisive Connectors

 By George I.  H. Cooke

A century ago, amid the roaring twenties, money underwent a fundamental change with the credit card making its debut in the United States of America. The use of n
otes and coins of different currencies had been predominant for centuries, and the onset of a new mode of transaction was revolutionary. While the first internationally accepted credit card was introduced in the 1950s, it was at end of the 20^th century that heavy reliance was experienced, as cards had a preponderant influence on the world of finance.

 

As we surge into the third decade of the 21^st century, money is undergoing a radical change once more. China has developed a Central Bank Digital Currency (CBDC) introducing the digital version of the Yuan, the Digital Currency Electronic Payment (DC/EP). With pilot projects in Shenzhen, Shanghai, Suzhou, Chengdu and Xiongan, the new form of currency will see an up-scaling of the financial system, a reinvigoration of day-to-day exchanges and a resounding impact on China’s monetary dealings with the world. Further, Chinese investors, business travellers and tourists will drive the circulation of the DC/EP to a greater extent.

 

Over the last several weeks, the cities of Beijing and Suzhou have seen a lottery in which 200, 000 ‘red packets’ of digital currency were distributed through a lottery. Each ‘red packet’ is estimated to be worth Rmb 200 and is part of the trial phase of the large roll out that is taking place throughout the year. Whilst Central Banks globally have started exploring digital versions of their own currencies, it has been seen as a response to cryptocurrency projects which are decentralized. The CBDC enables regulation via monetary authorities and affords legality to the digitized currency. Although no country has launched a CBDC officially, the piloting in China is expected to intensify in 2021 with a possible launch later in the year ahead of the 2022 Winter Olympics in Beijing. This is seen as a crucial step in the internationalization of the Yuan.

As China expands its influence in the global financial arena, trade and investment partners will see their transactions invoiced and settled in the Yuan. This trend is not confined to China, with an estimated 60 countries also experimenting with digital currencies. Although Sweden unveiled plans to become a cashless society by March 2023 with approximately 9% of its population using physical cash in 2020, and the Bahamas have also conducted trials and are finding means to use the digital currency, no country has made the same degree of progress as China.

Earlier this year, Agustin Carstens, General Manager of Bank for International Settlements, whilst speaking at the Hoover Institution Policy Seminar said that “even as they fight the fires related to the Covid-19 pandemic, Central Banks around the world have stepped up their CBDC design efforts. This should not be seen primarily as a reaction to the emergence of cryptocurrencies or the announcement of corporate stablecoin projects. Rather, they are proactively researching a new form of money and how it could improve retail payments in the digital area, in line with Central Bank mandates.”

The newly appointed US Secretary of the Treasury, Janet Yellon has also weighed in to support digital currencies noting that “too many Americans don’t have access to easy payments systems and banking accounts, and I think this is something that a digital dollar, a central bank digital currency, could help with. It could result in faster, safer and cheaper payments, which I think are important goals.” Whilst the US Federal Reserve has been engaging in research in this sphere, the statement of the Treasury Secretary is seen as the closest to an endorsement from the American administration.

In the United Kingdom, The Bank of England has taken steps to introduce ‘RSCoin’, which has been developed at the University College of London. The Bank has pointed out that “the key innovation of digital currencies is the ‘distributed ledger’ which allows a payment system to operate in an entirely decentralized way, without intermediaries such as banks.” Although such steps are being welcomed, concern grows for private banking institutions, which are keen to remain within the futuristic financial equation.  Japan, in adopting a varied approach to digital currencies has made private banks responsible for issuing digital yen, with some of the largest already identified to start issuing the currency in the course of this year.

India has also started the process of creating a digital currency with Shaktikanta Das, Governor of the Reserve Bank of India stressing that “a central bank digital currency is work in progress. An RBI team is working on the technology side and procedural side, and how it will be launched and rolled out.” With India preparing for the new currency, it is evident that the addition of Indian weight to that of China, the United States, Japan, and much of Europe, the enhanced use of this new form of money will receive an invigorated drive as the decade unfolds.

The emphasis placed by China will primarily see the digital currency used within the country but changes are expected as the country develops its Cross-Border Interbank Payment System (CIPS) through which the transactions in the Yuan sidestep the SWIFT system introduced for international payments. In 2019 alone, 980 financial organisations in 96 countries processed CNY 135.7billion a day, making the Chinese currency the 8^th largest international trading currency at 1.22 per cent of the total market share. Although assumed to be relatively low in comparison with the American currency that tops the largest traded international currency table with 45.58% of market share, the wide spread international interactions of China which continue to grow is likely to have a greater impact.

Back in December 2015, the International Monetary Fund awarded the Chinese currency reserve currency status, and thereafter added the Yuan to the Special Drawing Rights basket in October 2016 giving the currency parity with the British Pound, Euro, Japanese Yen and US Dollar. As the currency gains ground internationally, mainly through its trade and investment, the country will have a profound impact. Given that numerous countries partner with China, the impact would grow exponentially enabling the Chinese currency to gain momentum and thereby in turn influence the interactions of China.

While the gaining of ground of its currency remains the main priority of China at present, the next and most significant step would be the digital currency roll out going beyond the limits its main cities. Countries with strong trade and investment links with China, especially through engagement in the Belt and Road Initiative, will need an overhaul of their national financial systems with immediate measures to strategize for such an eventuality.

While the pandemic forced innovation on institutions and individuals, the reliance on physical payments for purchases are being discouraged and the move to the virtual domain is fast becoming the new norm. The rapid changes internationally, particularly in China within this sphere, make it imperative for countries to strategize. While the transition requires time, technology, and thorough understanding, it is clearly imminent. Although the steps taken in China and other countries are seen as initial steps towards a digital future, the road ahead is long but vital, if countries are to remain relevant, as digital currencies become the decisive connectors of the 21^st century.

AN AIR DIPLOMACY POLICY FOR SRI LANKA: Sri Lanka Air Force reaches its 70th anniversary

By George I. H. Cooke

On the eve of the 20^th century the Wright Brothers tested their wing-warping control concept of a flying device which revolutionized travel. Their invention in July 1899 set the pace for advancements in aviation that saw humans not only flying around the world but venturing further, into outer space and even landing on the moon 70 years later in 1969. To date, many other aspects of air travel have intensified with the space race playing a key role. 

The intrinsic patterns of history which resulted in the rise and fall of states have seen a significant development throughout the twentieth century as air travel intensified to its current level of operation. The ability to cross regions and continents in shorter periods of time altered the practice of diplomacy itself. Whilst diplomats played a critical role for centuries as the emissaries of leaders, who rarely or never met, increased air travel has enabled connectivity at the highest level, resulting in the diplomat needing to evolve and for the practice of diplomacy to become more indepth and specialized.

Amidst these vast strides in diplomacy and transportation, the Air Power of states has grown significantly allowing for its use in times of emergency and need, as well as during conflict. Air Diplomacy and its usage, is of paramount relevance for an island nation, such as Sri Lanka. Given that connectivity and defence are the basic tenants upon which states like Sri Lanka have survived for millennia, the rationale for Air Diplomacy is imperative. An Air Diplomacy policy would generate new opportunities for Sri Lanka and Foreign policy, while increasing the potential of the Sri Lanka Air Force (SLAF).

An innovative Air Diplomacy policy needs to be rationalized on two levels, bilateral and multilateral. Identifying critical areas of governance and incorporation of strategy to achieve overarching objectives ensures the creation of a state which can harness opportunities, develop industry, prosper people and equally importantly, increase its presence and influence on the world stage. All nation states, irrespective of their size, location or resources, look to enhance their potential and power. A comprehensive Air Diplomacy Policy augurs well for defence, strengthens foreign policy, boosts diplomacy and increases connectivity.

Developed countries race into the future with the latest innovations and modern technology, with immense power and intense influence. The advancements are spread across private and public sectors, with states improving infrastructure, enhancing air capabilities and incorporating this dimension into diplomacy to increase connectivity. Developing countries heavy reliance on diplomatic engagement to remain formidable players on the world’s stage often lack sufficient infrastructure and budgetary constraints.

It is thus necessary for such countries, including Sri Lanka to explore areas of cooperation through which the synergy of joint collaboration would yield positive results. A concerted policy of Air Diplomacy would result in a plethora of opportunities which portend well for the betterment of the SLAF as one of the key implementing agencies. It would be a venture into a hitherto untapped area of expertise that would advance diplomatic engagement and strengthen foreign policy tools at the disposal of the state.

BILATERAL ENGAGEMENT    

Sri Lanka has numerous missions which are accredited to more countries. Continuous interactions with these countries form the first tier from which an Air Diplomacy policy could be activated. This could be established by the SLAF, through the Ministry of Foreign Affairs, and Sri Lanka Missions as well as resident missions in Sri Lanka and Honorary Consuls. Reaching out to as many countries as possible conveys a strong message of interest and seriousness while raising awareness towards the national initiative. 

Of the countries with which Sri Lanka engages, many are those from which purchases of ammunition, equipment, aircraft, vessels have been made. Given their importance and the rationale for closer relations, it would be prudent to propose solid cooperation such as structured joint sessions between the militaries, and joint drills, with foreign Air Forces. This interface would lead to deeper understanding, better cooperation and stronger connectivity, especially at times of need. As leaders in the aviation sector, these countries have the capacity and capability to extend cooperation in the technology sharing sphere.

RESEARCH AND TRAINING

Research remains a crucial factor for policy formulation. Efforts have to be made to understand the nature and potential of Air Diplomacy, through collaboration among academia, the SLAF and the Ministry of Foreign Affairs if the endeavour is to succeed. A thorough study would reveal areas in which strengths exist, weaknesses persist, opportunities abound and threats maybe perceived. Equally important are case studies of other countries, their Air Forces, the nature of collaboration therein and the means through which such policies have been formulated and implemented. Countries look to increase Air Power and what appears as sole Air Power strategies would possess critical processes in which Air Diplomacy has been incorporated.

In June 2019, the integral air partnership between France and Singapore came in for praise. Singapore’s Senior Minister of State for Defence Heng Chee How speaking at the Cazauz Air Base in France noted that the opportunity to train alongside a very professional Air Force, such as the French Air Force spoke volumes of the practical value of the bilateral collaboration. He observed that a strong and capable defence must include a strong Air Force, which has the ability to train its pilots well. The collaboration was good for both countries as Singapore gained the latest technique and precision, while France deepened ties with an Asian ally.

In July 2019 military cooperation was enhanced through joint air patrols as Russia and China negotiated an agreement for deeper cooperation and conducted their first joint patrol mission over the Sea of Japan. The agreement was an extension of one that was agreed in 1993 which focused on conditions for cooperation in military technology. It also detailed training, learning and information exchanges, mutual assistance in servicing weapons and military equipment and conducting joint research and commemorative military events.

These are unique platform for countries to consolidate their relations and strategize collectively. The depth of the partnerships would be felt in situations of tension as these strategic partners bolster each other. Sri Lanka would do well to attempt deepening such partnerships for research and training thereby widening existing opportunities afforded from foreign Air Forces. The exposure that SLAF officers would receive would enable them to gain knowledge and insight into the latest innovations and technology whilst also equipping them with deeper understanding of countries and their policies.

Programmes at the Junior Command and Staff Course could see more foreign participants, who would understand Sri Lanka better, and comprehend the trajectory of the country. Their presence in increased numbers would in turn allow Sri Lankan officers to grasp subtleties of foreign forces through interactions and this would yield vital results in the long term as these officers progress in seniority in their respective forces and retain a unique connection to Sri Lanka. A senior level programme would also be beneficial in yielding such results and be a supplementary platform for interaction. Similarly a concerted effort is required to obtain reciprocal placements in foreign Air Force Academies. From the sporting arena, through friendly aircraft visits, bilateral drills and air shows at periodic stages through which an interest is generated among the general public connectivity would be deepened between the two Forces and countries. Avenues for engagement remain limitless. An Air Diplomacy policy would contribute towards Sri Lanka’s overall bilateral engagement.

MULTILATERAL ENGAGEMENT

The second tier of multilateral engagement could see regional conclaves through existing regional mechanisms or through new structures. While South Asian cooperation seems too early, Sri Lanka could play a catalytic role of bringing Indian Ocean Rim Association (IORA) countries together to implement a policy of Air Diplomacy and enhance security cooperation.

Sri Lanka currently chairs the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) with leadership delegated in the area of technology. BIMSTEC is an ideal platform from which military cooperation can be promoted with an Air Diplomacy Policy. This position of leadership gives Sri Lanka the possibility of reaching out to other member states and embarking on a new initiative. Air connectivity remains pivotal for states and the incorporation of such a policy would bode well to strengthen regional ties, and serve as a platform for increased development of the Air Forces of each member state.

Furthermore, within the Shanghai Cooperation Organisation (SCO), wherein Sri Lanka is a dialogue partner, the country could seek deeper engagement, even actively campaigning for full membership, while articulating the contribution, especially in the area of counter terrorism that the country would be able to make, and gain through collaboration with other member states, observers and dialogue partners. Having identified the three evils of separatism, terrorism and extremism, the SCO undertakes numerous initiatives which include military drills at the All-SCO level. Awareness of the impact of such exercises is not widely discussed but the presence of the political leadership at the drills denotes the growing significance of the organisation. Inclusion of India and Pakistan in 2017 increased the importance of the grouping as its area of coverage reaches across South Asia. 2021 marks two decades of the SCO and it would be prudent for Sri Lanka to increase its membership even at this stage.

Of the member states, China has constructed and utilizes special warehouses and other infrastructure to carry out simulations for military exercises as part of training. This is done to recreate the environment and provide for varied terrain which is required for complete training purposes. Sri Lanka, possessing different forms of natural terrain within the country, as well as the vast territory, in which the conflict was waged, and the ideal temperature and topography to simulate tropical environments, would be able to offer a complete option to China and SCO. These conditions are not curtailed to the land and extend further throughout the diversity found with regard to the sea and especially in relation to the air space over varied forms of land, and the sea.

Sri Lanka and Russia have enjoyed close diplomatic relations since 1957. In contemporary times, Sri Lanka has experienced the wholehearted support of Russia, especially in international fora. Sri Lanka needs to reach out to Russia and seek support in expanding its membership in SCO. Sri Lanka should not merely seek membership to add yet another international grouping to its list of multilateral engagement bodies. Sri Lanka is more than a decade after ending a violent terrorist conflict on its soil and is in a position to share its experiences with the world. It is this experience that Sri Lanka needs to take to the SCO table, and for which Russia and other countries in the grouping would find the provision of full membership noteworthy. The platform exists, and it is up to Sri Lanka to make the initiative of interacting that much more.

While the aspect of terrain would augur well for overall military cooperation, a proposal based on Air Diplomacy creates a new platform for collaboration. Whilst the joint military drills are carried out in member states, the floating of a new initiative of this nature would give dialogue partners the opportunity of being included in such exercises.

Smaller countries stand to gain much from such groupings and questions are raised over their contribution in return. It is imperative that countries like Sri Lanka ‘bring to the table’ the decades of experience, especially in the fields of counter terrorism, and are identified as countries that have acted with determination and deserve due recognition for the contribution made in thwarting terror on its soil. The offer of fresh initiatives, expertise and territory – land, sea and air - translate into tangible aspects of cooperation which would be welcomed by the SCO and would bode well for Sri Lanka, if and when the country decides to seek full membership in the grouping.

AIR DIPLOMACY DIALOGUE

Exploring new areas of air connectivity through the creation of a ‘Shangri la Dialogue’ model could be implemented for purposes of Air Diplomacy. This platform would generate immense opportunities for Air Chiefs, multiple stakeholders from the field and technical experts to converge each year in a bid to discuss military aviation issues, multilateral cooperation, enhance regional security as well as improve humanitarian assistance and relief efforts. The conference would also serve as a hub for the sharing of information on suspicious air activity, response to terror threats, and measures that could be adopted to thwart such activity and threats.

This ‘Air Diplomacy Dialogue’ structured to bring together the government, military and academia would converge vital sectors in securing the best possible opportunities for the countries concerned. With representation from the government hierarchy, military command and academicians, consensus could be sought and reached on regional and international issues in the field of air power. Sri Lanka’s hosting of such a venture, although financially intense would give the island an unparalleled niche in this sphere. This initiative would require a solid entrenchment in the sector first and it would be prudent to realize such a Dialogue in the long term. Realizing this initiative would make the island the centre of Air Diplomacy and the key node in the dialogue on Air Power in South Asia.

AIR CHIEF’S CONCLAVE

Whether through international groupings, or through an Air Diplomacy Dialogue, a primary step in promoting cooperation in the sphere of Air Diplomacy is the hosting of an Air Force Chief’s Conference. Given the pivotal role of Air Chiefs, and their role in formulating and implementing an Air Diplomacy policy, a conclave through which they would meet annually is paramount to set direction and ensure results.

Whether in the Americas, Africa or South East Asia, the apparatus in operation is one which identifies the overwhelming importance of guaranteeing and strengthening Air Power and adopting sound Air Diplomacy polices which augment other Foreign policy tools in boosting cooperation, providing security and developing a fresh platform for cooperation. Three case studies identified, from the Americas, Africa and South East Asia indicate commonalities which enable clear study of their modus operandi. The potential in bridging gaps in regional security, establishing policy to combat threats and improving preparedness displays their success, and highlights the importance of the platforms they have created.

The System of Cooperation among the American Air Forces (SICOFAA) was established to consolidate cooperation among the Air Forces of the American continent and for joint action if the need arises. SICOFAA focuses on simulated air operations, human resource enhancement, provision of education, training, scientific research, conducting search and rescue missions, preparing for disaster relief operations and weather related exercises, improving telecommunication and generating awareness on aerospace medicine. Air Chiefs of the 21 members meet annually at the Conference of the American Air Chiefs (CONJEFAMER).

The Association of South East Asian Nations (ASEAN) established an ASEAN Air Chiefs Conference (AACC) in 2004. It functions as the key platform for their Air Forces to foster closer ties and increase cooperation in military aviation and multilateral air force collaboration to respond to issues concerning counterterrorism, humanitarian assistance and disaster relief. In 2018, the AACC strengthened the standard operating procedures for ASEAN Air Forces to respond faster to humanitarian assistance and disaster relief operations (HADR). These measures included a uniformed prefix in aircraft call signs for regional HADR operations, to ensure faster diplomatic clearance processes. They created the ASEAN Air Force Centre Counter-Terrorism Hotline to share information about suspicious air activities and terrorist threats, and supported the Guidelines for Air Encounters between Military Aircraft framework as a confidence building measure to increase aviation security.

The African Air Chiefs Symposium (AACS) comprise Chiefs from across the African continent meeting with their American counterparts to discuss continental defence issues. They identify their national capabilities and challenges and look for ways to resolve common issues, while guaranteeing training and force development. The AACS has evolved a Charter which outlines the fundamental areas to be air operations in relation to mobility; intelligence, surveillance and reconnaissance (ISR); close air attack, provision of humanitarian assistance and disaster relief, responding to transnational threats, improving human resources, education and training, guaranteeing supply, logistics and rapid response as well as prevention of air accidents and ensuring air domain safety. 

CONCLUSION

Formulating a two - tier strategy would result in the consolidation of a network of strategic partners. Bilaterally the scope of engagement is vast given the potential of collective action to boost the aviation sector and earn the dividends of synergizing. From joint sessions at the highest and technical levels, improved research and sharing of technology, to international exposure through increased overseas training opportunities and increased domestic training courses for foreign officers, as well as bilateral air drills and friendly aircraft visits, all of which would consolidate the strategic partnership that Sri Lanka would enjoy with key partners in the international community.

At the multilateral level, the opportunities being harnessed bear testimony to the potential of joint efforts in maintaining peace and stability within, increasing regional security against outside threats, raising standards across the board and equally importantly fortifying Foreign policy. An Air Chiefs Conclave would see Sri Lanka being identified as a country with genuine interest in Air Diplomacy and create a new niche on the world’s stage, ensuring that image is built, and trust and confidence is boosted.

The adoption of the two – tier strategy would enhance connectivity and defence which are the basic tenants upon which states have survived for millennia. The rationale for Air Diplomacy remains paramount as the implementation of an Air Diplomacy Policy would generate new opportunities for Sri Lanka in general, while increasing the potential of the Sri Lanka Air Force which has made a decisive and overarching contribution to the preservation of the territorial integrity and sovereignty of the island nation, and is today at its 70^th anniversary.

120 years after the Wright Brothers revolutionized travel, humanity stands on the threshold of harnessing the vast strides made in the field of aviation. Whilst developed countries sprint into the future with the adoption of the latest technology and mutually beneficial collaboration, it is time that developing countries in general and Sri Lanka in particular, broadened the scope of diplomatic engagement, enhanced capacity to reach beyond the accepted, built strong and long lasting partnerships, while further strengthening ones that exist, and look to the future to rebrand, revitalize and revolutionize diplomacy.

An Air Diplomacy policy promises to lay the foundation for such an endeavour and needs to be pursued with vigour if Sri Lanka is to take her place amongst her contemporaries in the current age.