The Launch of China’s Digital Yuan: Innovation or Surveillance?
China is planning to launch the digital version of the Yuan. The digital yuan is an example of a central bank digital currency (CBDC). Other central banks like Sweden and Bangladesh, are also planning to issue a digital version of their currency in the near future.
The Chinese central bank is currently leading the way in issuing its own CBDC, in fact Chinese citizens may be able to use the virtual currency by the second half of 2021.
It’s not clear how welcome the new virtual currency is amongst financial experts.
Some believe that the launch of the digital yuan is a great piece of innovation that will help to strengthen the Chinese economy.
Others believe that it may be a tool for the government to help increase surveillance of Chinese citizens.
Hong Kong could spearhead China’s financial integration with world, digital yuan use: government officials https://t.co/rx3EcC5x6a
— SCMP News (@SCMPNews) January 19, 2021
The digital payment revolution in China
It’s becoming harder and harder to use cash in the modern era. Gone are the days of using briefcases full of cash to buy your next house or sportscar.
In the age of smartphones, where payments can be made within seconds through digital payment systems.
Statista reports that 347 trillion yuan were transacted via mobile payments in 2019. By the first quarter of 2020 at least half of the Chinese population had transacted via mobile payment systems at least once a year. Much of this is being led by private companies who are increasing the available digital payment solutions in China.
“I look at this really meeting several goals. But, I think the bigger opportunity here is this is a way for the Chinese yuan to be distributed globally,” Circle CEO Jeremy Allaire told CNBC’s “Squawk Box”
“This becomes a mechanism by which (the yuan) can be used in everyday transactions all around the world,” added Allaire, an internet entrepreneur who also founded video streaming firm Brightcove. “It’s ultimately a foundation for the ’internationalization’ of the yuan”.
Alipay and WeChat Pay are the biggest payment companies in China.
Many commentators believe that China is planning to launch its digital payment system because the government wants a centralized system. The government would then be able to better control a central credit scoring system, for instance.
Private payment companies will have to comply with the rules of the digital yuan which will ease the way for the government to monitor all transactions made in China.
Covid-19 and the launch of the digital yuan
The Covid-19 pandemic has dramatically changed the financial system. During the pandemic, more transactions were performed digitally than ever before, mainly linked to the amount of lockdowns across the world.
China was one of the first countries to enforce a nationwide lockdown to slow the spread of the disease. The Chinese government even ordered banks to disinfect cash to curb the spread of Covid-19.
The story of how Chinese banks handled their cash in 2020, enforced among people the idea that cash is unsafe, and now that it also helps the spread of diseases.
The world was forced to go fully digital, and this helped China decide that it also needs to work on its’ own CBDC.
The pandemic also saw a rise in contact tracing applications, much like we have seen in the UK too. Except that in China the government didn’t let the system fail, and have managed to collect vital private information from citizens to help in eliminating the virus.
The strategy worked, but there remain lingering concerns about how the Chinese government may use the data they collected, in the future.
The digital yuan will be centrally controlled by the government alongside users’ data. People will not just have to worry about what Tech Giants do with their data, but what the government does with it too. Just consider how problems like the unrest in Hong Kong might be resolved in the future.
Modern Banking Wars
With many commentators suggesting that China will overtake the U.S. as the largest economy in the world within the next 10 years, if not sooner, the Modern Banking Wars will continue.
“I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also,” Trump said in an interview with Reuters https://t.co/D1fVGqxnQX
— Bloomberg (@business) August 21, 2018
Trump famously accused China of manipulating its currency to gain an undue advantage when trading with its’ partners. We covered the story of problems between the U.S. and China in our story about Hong Kong in June last year.
If China wants to stay in the race, it’s best chance is by continuing to innovate, and not just in electronics, but in automotive, utilities and a whole host of industries.
Swift has reported that 80% of world trade is undertaken through using the U.S. dollar. If China can create a more innovative currency that is less bulky, more secure, and has a faster transaction speed than the U.S. dollar. Then the digital yuan might have a chance to replace the US dollar as the world reserve currency.
“The Chinese government believes that if some other countries can also use the Chinese currency it can break the United States’ monetary sovereignty. The United States has built the current global financial system and the instruments,” Chinese cryptocurrency observer known as Bitfool told the BBC
Jack Ma’s disappearance and concerns about free speech
It was widely reported by news outlets across the world that Chinese billionaire, Jack Ma suddenly disappeared.
Ma’s disappearance was reported just a few weeks after he criticized the Chinese regulator, following on from the famous Ant group IPO that was halted by the Chinese government.
Jack reappeared a few months later in a live streamed event this Wednesday but it is possible that he was arrested by the government during the period of his disappearance.
BREAKING: Billionaire Jack Ma resurfaced after months out of public view, addressing rural teachers in a video conference https://t.co/SgSnRDzXap pic.twitter.com/wMqH2oL40u
— Bloomberg (@business) January 20, 2021
The Chinese government is hostile towards free speech and the information obtained from users may be used to fight against the critics of the communist government.
Is the digital yuan an innovative concept or a tool to maintain surveillance of Chinese citizens? Only time will tell. But, if China wants their currency to compete with the U.S. Dollar they may have to resign from the surveillance part of their plan.
Author: Joel Oluwatobi
#ModernBankingWars #DigitalYuan #DigitalPayments #Cashless #China #Covid-19 #JackMa #AntGroup
Artykuł The Launch of China’s Digital Yuan: Innovation or Surveillance? pochodzi z serwisu Disruption Banking.