China, how the digital yuan is doing

China

Visa paid handsomely for being the only payment system at the Olympic Games. However, at the winter edition of Beijing 2022, in China, the company still had to deal with competition, in this case from the Chinese government. After a passport scan, tourists attending the event were able to convert foreign banknotes into eCny, a new digital currency introduced by the People's Bank of China. To make purchases within the Olympic village, it was possible to use a card or an application.

Even if China began to experiment with the use of a state digital currency as early as 2019, the introduction of the eCny at the Olympics is part of a project with global ambitions. As the first major country to launch an official digital currency on a large scale, China is far ahead of the United States and other nations, where the concept is currently only under discussion. Many hope that state digital currencies could improve efficiency and spur innovation in financial services. However, China and tech experts behind the project argue that the ECNY, also known as the digital renminbi or digital yuan, paves the way for new forms of government surveillance and societal control. In October, Jeremy Fleming, head of the GCHQ (Government communications headquarters, the British government agency that deals with security, espionage and counter-espionage in the communications sector), stressed in a speech that the Chinese government could use its digital currency to monitor citizens and evade international sanctions.

First steps and development

Nonetheless, the digital yuan's take-off has been slow. The People's Bank of China reported that the official application for the eCNY had 261 million users as of the end of 2021, and more than 100 billion yuan (about 14 billion euros) had been involved in 360 million transactions as of August 31. . These are modest numbers compared to the size of China's population and economy, but according to forecasts they are destined to grow in the face of the recent expansion of the digital yuan from around 20 cities to four provinces of the country.

Unlike a cryptocurrency like bitcoin, the digital yuan is issued directly by China's central bank and is not dependent on a blockchain. The digital currency has the same value as its analog equivalent, the yuan (also called the renminbi), and for consumers, the experience is not much different than paying by credit card. At the back-end level, though, payments don't go through a bank and can sometimes circulate without transaction fees, moving from one e-wallet to another as easily as cash changes hands.

Chinese government push

Chinese citizens have been encouraged to adopt the digital yuan by both the government and local authorities. During the summer, trials began in the cities of Fujian, a province on the country's southern coast which is also an important location for international trade. A foreign resident, who asked not to remain anonymous so as not to draw the attention of Chinese authorities, told sportsgaming.win US that a few days after the announcement in Fujian's capital Fuzhou, supermarkets immediately followed the announcement and signs indicating the ability to pay with the digital yuan popped up in small grocery stores, which then spread rapidly to the surrounding rural areas as well. However, many local residents did not see the need for a new form of digital payment, as they could already use mobile payment services offered by Alipay – an online payment platform launched by Chinese e-commerce giant Alibaba – and by WeChat Pay, Tencent's digital wallet .

Among the strategies to promote the adoption of the Chinese state currency are the reimbursement of public employees' expenses in digital yuan or the deposit of small sums in the wallets of new users to encourage them to try the currency. Last year, on the occasion of the Qixi festival - which has also been renamed as Chinese Valentine's Day - the Chinese bank ICBC offered the first twenty couples who got married at a registry office in the city of Chengdu a card prepaid with 199 digital yuan, about 27 euros.

Despite the modest results so far of the experiments for the expansion of the Chinese digital currency, Yaya J. Fanusie , member of the Center for a new american security (Cnas) - a think tank based in Washington – argues that for the moment, rapid adoption is not yet China's priority. The People's Bank of China is building the infrastructure to enable large-scale use in the coming years by engaging merchants, adapting the banking system, and developing applications that allow the digital money to be used for healthcare or transportation. These foundations are designed to make the eCNY the default payment system in China within ten to fifteen years.

“China is undoubtedly the global leader in terms of advancement [of the experimentation, ed] , the number of people using it and, above all, the size of the country, ”explains Jeremy Mark , a member of the Atlantic Council think tank. The Central bank digital currency tracker developed by the organization lists the one hundred and five countries that are exploring the introduction of a digital currency managed by a central bank, of which, however, only twenty-six have started pilot programs or launched a digital currency.

Earlier this month, India's central bank said it would introduce a digital version of the rupee. Brazil had planned a digital real for this year, only to postpone the project to 2024. The European Central Bank is also studying the possibility of a digital euro, while US President Joe Biden and some members of Congress have asked to examine the development of a digital version of the dollar.

The goals behind the project

The Chinese project is motivated in part by an awareness ingrained in the country's ruling class: with previous technologies – from space exploration to the internet – China has always found itself chasing after other nations. President Xi Jinping regularly stresses that China must take a leadership role in developing the digital economy. Emily Jin, who works on the Chinese economy at the Center for a New American Security, points out however that the project has political as well as economic motivations: "Chinese politicians are trying to create not only a technical infrastructure, but also an institutional environment that makes this type of currency – which has implications for social control – more acceptable in the long run,” Jin says.

China is in a good position to get ahead of the West in the digital currency sector, in partly because until recently its banking system was less developed than that of countries like the United States. With the advent of smartphones, mobile payment systems quickly attracted consumers who, unlike those in wealthier nations, did not yet own credit cards, explains Martin Chorzempa, author of The Cashless Revolution, where he traces the rise of digital payments in China. In the mid-1910s, Chinese people in big cities generally switched from cash to Alipay and WeChat Pay. Around 64 percent of Chinese people used mobile payment systems as of the end of 2021, with Alipay and WeChat Pay handling the majority of transactions, according to a report by Daxue consulting. For city dwellers, the figure rose to 80 percent.

One of the reasons the Chinese government is pushing the digital yuan is to gain more control over how citizens pay. For years, the country's big tech companies have operated almost like utilities, effectively regulating large parts of the financial industry. Meanwhile, they also acquired a flood of citizen data, which ultimately prompted public backlash and scrutiny from regulators. For now, users can transfer their digital yuan to a WeChat Pay or Alipay account, but the government may decide to shut down these systems: "They look at payment platforms as a huge part of the economy that, strictly speaking, it is beyond their control,” says Mark of the Atlantic Council.

The digital yuan could somehow be less invasive than a private network like Tencent's, because it would not combine payment information with other traces digital data left by an individual, for example data from social networks. However, it could also give the government an opportunity to intrude more into people's lives. Foreign companies that come into conflict against the government - for example with comments challenging the official line on Taiwan or Xinjiang - might suddenly find that they no longer have a way to receive payments. The People's Bank of China says that only a phone number will be required for verification for accounts with balances below a certain threshold, but Chinese authorities already have extensive resources to access private data.

The moves of the United States

In the United States, the Chinese project and the rise of cryptocurrencies such as bitcoin have fueled the debate around the creation of a digital version of the dollar. There are fears in some Washington circles that the country could fall behind in financial innovation or lose some of its influence over global finance. During a congressional hearing last May, deputies questioned Lael Brainard, vice president of the American central bank, the Federal Reserve, on the privacy problems of the project and on the possibility that it has the authority to issue a digital currency. Many have expressed fears that the government could meddle in sectors that used to be the responsibility of private banks, suggesting in other cases that cryptocurrencies, outside of government control, could fulfill the same function.

In his testimony Brainard noted that it has not yet been determined whether or not the US needs a digital currency, but that the country should still be ready to roll out its own version, a process he estimates could take five years. : “In a world where other major jurisdictions move toward issuing their own digital currencies, it is important to consider whether the United States would continue to have the same type of dominance,” Brainard said.

This article originally appeared on sportsgaming.win US.