Digital Yuan
Description
Saule T. Omarova:
"China is the undeniable leader in the CBDC race, the only major economy with a “live” CBDC in the public testing phase. The People’s Bank of China (PBOC) has been actively working on CBDC since 2014 and launched its first multi-province “digital yuan” (e-CNY) pilot in early 2020.10 The Chinese government has partnered with private Chinese banks and technology companies to offer mobile apps, ATMs, and other supporting services for e-CNY.
It also offered direct money incentives for retail users, to encourage e-CNY adoption on a scale sufficient to get the system ready for use at the at the 2022 Beijing Winter Olympics.11 By the end of August of 2022, transactions using e-CNY surpassed $13.9 billion (or 100 billion yuan). The spending involved 360 million transactions in pilot areas in 15 provinces and municipalities, with more than 5.6 million merchants accepting digital yuan payments. In 2022 alone, participating regions have reportedly offered 30 rounds of e-CNY subsidies – including the $4.5 million in free e-CNY drop in Shanghai – designed to stimulate consumption and serve other macroeconomic purposes. During the Lunar New Year period, the government distributed nearly $30 million dollars’ worth of e-CNY to boost its use for holiday spending and gifting As reported in early 2023, China is planning to expand its digital yuan pilot to most of its 1.4 billion population.
From the start, the Chinese government has approached the e-CNY issuance as a long-term strategic project serving multiple political goals. As designed, the e-CNY system gives the PBOC sole direct access to users’ financial and transactional data and ability to monitor individual payments in real time. This new form of mass surveillance qualitatively expands the familiar toolkit of digital authoritarianism and amplifies its capacity to collect information far beyond its own borders. For example, at the Beijing Winter Olympics, the e-CNY was reportedly used to make more than $315,000 of payments a day, which raised concerns about the possibility of enabling Chinese government to monitor foreign citizens’ financial transactions. Centralized state control of money and payments can also be used as an instrument of coercion, as the government can punish political dissenters by freezing or expropriating their funds and effectively cutting them off from the financial system. It can also manipulate people’s opinions and behavior by “rewarding” political loyalty via direct credit of their e-CNY wallets or by subsidizing intentionally designed “activities.” The malleability and programmability of digital money makes it a particularly effective instrument of power.
The e-CNY is also closely tied to China’s geopolitical ambitions. Despite China’s leading role in international trade, its currency currently constitutes a tiny share of international payments settled primarily in USD. Issuing its own digital currency will enable the Chinese government to create an alternative global payments system it can effectively control. Coupled with the Chinese government’s longstanding strategy of investing in the infrastructure and acquiring real assets in foreign countries, the globalization of the digital yuan will solidify China’s economic dominance and expand its geographic sphere of influence. It will also insulate China and its geopolitical allies from economic sanctions and other means of political pressure exerted by the international community.18 This technologically-enabled concentration of financial, infrastructural, and political power in China’s hands will fracture the global system and potentially subject many sovereign countries’ populations to mass surveillance and oppressive tactics deployed by the Chinese government against its own citizens.
At this relatively early stage, it is difficult to identify the full range of dangerous implications of using CBDC as a tool of digital authoritarianism, In part, the picture may be hazy because the Chinese government has been working on the e-CNY rollout in partnerships, both globally with other governments and domestically with private companies. In 2022, the PBOC partnered with central banks of Thailand, Hong Kong, and United Arab Emirates to test a multi-CBDC cross-border payments platform, m-Bridge, where the e-CNY was the most actively used settlement currency.19 Domestically, PBOC issues and distributes its e-CNY not directly but through several state-approved banks. The digital yuan is accepted for payments on China’s major social media and e-commerce platforms, including WeChat and Alibaba that offer their own competing payment apps.20 Private companies’ participation may help to obscure the nature and extent of the government’s control over the emerging ecosystem, thus legitimizing the entire project as an innovative economic experiment. It is critical to remember, however, that the public-private dynamics in digital finance are bound to reflect the underlying balance of public and private powers in the relevant political system."
(https://cdn.sanity.io/files/9xbysn2u/production/4d7f42a888168a1d66292f26cdc50b5e3ff8d698.pdf)
Source: Article/Chapter: Digital Finance and the Specter of Digital Authoritarianism. Saule T. Omarova. In: Decoding Digital Authoritarianism. Global Affairs Canada, 2023.
Discussion
Yanis Varoufakis (interviewed by Evgeny Morozov):
What do you make of China’s recent efforts to rein in both its FinTech market and the crypto industry, as well as to accelerate the development of the e-yuan? Are they an example for Europe and the US to emulate? And if so, what are the elements worth borrowing? I am immensely impressed by these moves, especially when looked at as a package.
The Chinese authorities are, at once:
(1) deflating the real estate bubble (by taking down Evergrande, blow-by-blow);
(2) aiming to reduce aggregate investment from 50% to 30% of GDP as a precondition for boosting the wage share of GDP;
(3) ending the oppressive tutoring system for pupils that crushes young souls without helping nurture creative thinking;
(4) sponsoring sci-fi writing and game design;
(5) restricting the power of Big Tech; and, last but certainly not least,
(6) bringing the digital yuan online.
That last move, the digital yuan, constitutes a revolution: when fully-fledged, it will equip every resident in China, but also anyone from around the world who wants to trade with China, with a digital wallet – a basic digital bank account. In one move, therefore, the commercial banks will have been ‘dis-intermediated’; or, in plain English, they will have lost their monopoly over the payments system. This is genuinely a radical break from finance as we have known it. And, yes, it is one that we should emulate in Europe and in the United States – which is, of course, why Wall Street and the rest of the West’s financiers will do their best to stop it, preferring to blow up the world rather than allow themselves to be… dis-intermediated.”